20th Report, 2015 (Session 4): International Organisations (Immunities and Privileges) (Scotland) Amendment Order 2015

SP Paper 839 (Web)

Contents

Report
Annexe A

Remit and membership

Remit:

To consider and report on:
a) the administration of criminal and civil justice, community safety and other matters falling within the responsibility of the Cabinet Secretary for Justice; and
b) the functions of the Lord Advocate other than as head of the systems of criminal prosecution and investigation of deaths in Scotland.

Membership:

Christine Grahame (Convener)
Elaine Murray (Deputy Convener)
Christian Allard
Roderick Campbell
John Finnie
Margaret McDougall
Alison McInnes
Margaret Mitchell
Gil Paterson

International Organisations (Immunities and Privileges) (Scotland) Amendment Order 2015

The Committee reports to the Parliament as follows—

INTERNATIONAL ORGANISATIONS (IMMUNITIES AND PRIVILEGES) (SCOTLAND) AMENDMENT ORDER 2015 [DRAFT].

Introduction

1. The draft International Organisations (Immunities and Privileges) (Scotland) Amendment Order 2015 was referred in October to the Justice Committee as lead committee. It is subject to the affirmative procedure.

The draft instrument

2. The draft instrument was made under powers conferred by section 1(2) of the International Organisations Act 1968 and all other enabling powers. The instrument amends the International Organisations (Immunities and Privileges) (Scotland) Order 2009 to confer legal privileges and immunities on the Asian Infrastructure Investment Bank, and on persons associated with the Bank, so far as this is within the devolved competence of the Scottish Parliament. A related Order covering reserved matters was approved by the UK Parliament earlier this month. The Scottish Government’s Policy Note accompanying the instrument explains that the orders have been brought forward to help secure compliance by the UK with its international obligations (the UK having been a signatory to the Articles of Agreement of the new bank) and to enable the AIIB to operate effectively.1

Scrutiny by the Delegated Powers and Law Reform Committee

3. The Delegated Powers and Law Reform Committee considered this instrument at its meeting on 22 September 2015 and agreed that it did not need to draw it to the attention of the Parliament on any grounds within its remit.

Justice Committee consideration: first evidence session

4. The Committee originally took evidence on the instrument on 27 October 2015, hearing from the Cabinet Secretary and officials. At that meeting the Committee raised a number of concerns regarding the perceived need for the AIIB to be conferred certain privileges and immunities, particularly given recent criticisms levied at financial institutions and the banking sector more generally. Some uncertainty was also expressed as to the status and functions of the AIIB. Certain Members were also interested to know what the potential consequences of not agreeing the order might be and where the funding for such an institution would come from. Views were expressed towards the end of the evidence session that the Committee did not have sufficient information to make an informed decision regarding the instrument. The Cabinet Secretary, who had not made an opening statement in support of the instrument, agreed to provide further information2. He also offered to liaise with UK Government to seek clarification regarding the issues raised by the Committee. The Committee agreed to postpone consideration of the instrument until this additional information had been provided.

5. In the interim, the Parliament agreed to suspend Standing Orders inasmuch as they require the lead committee considering an affirmative instrument to report on it within 40 days of it being laid.3 This was to enable the further information promised by the Cabinet Secretary to be provided and for another evidence session to be scheduled. It is the Committee’s informal understanding that the UK Government is keen for all necessary legal changes required under the Articles of Agreement to be in place by early December.

Justice Committee consideration: second evidence session and debate

6. The draft order was considered again on 17 November 2015. Additional background information had been provided by Scottish Government officials (Annexe A) on 12 November 2015. The Committee also considered a letter4 from Owen Kelly, Chief Executive of Scottish Financial Enterprise, urging it to support the instrument on the ground that failing to do so might be a singling out of the new body and might raise questions about whether the UK, or Scotland, was treating the institution with the same respect it accorded to international bodies with similar status and functions to the AIIB.

7. The Cabinet Secretary, in his opening statement5 explained that the order would confer various legal privileges on, or in connection with, the AIIB, a new multilateral development bank. The purpose of the AIIB is to address the gap in investment in infrastructure in Asia. The United Kingdom Government signed up to be a prospective founding member. Prospective members have concluded an international agreement setting out the structure and functions of the organisation. In effect, the order would add the AIIB to the list of organisations that have been granted similar privileges and immunities in Scotland. Some of these multilateral institutions have privileges and immunities that predate devolution and include the European Bank for Reconstruction and Development and the Inter-American Development Bank. Other organisations have been afforded privileges and immunities since devolution. These include the International Maritime Organization and the European Police College.

8. The agreement also sets out the organisation’s status in international law. To enable the independent exercise of the AIIB’s functions as an international organisation, certain privileges and immunities will apply in all the states that become members of the organisation. The conferral of those immunities and privileges is, in effect, a condition of membership of the organisation. However, the AIIB and its officials would be expected to comply with the laws of the UK.

9. Questions were again raised as to the perceived need to confer immunities and privileges on the AIIB, with particular reference made to taxation and business rates for potential premises based in Scotland. The Cabinet Secretary explained6 that the privileges or immunities must be provided to the bank by all the countries who want to join or be members of it, and protection must be given from local taxation and local rates for buildings that it might occupy. However, the Cabinet Secretary explained7 that the immunities would be for functions relating to the bank and that individuals working for the AIIB would be expected to adhere to the laws of the host country. Host countries could ask individuals to give up immunities and privileges for the purposes of pursuing legal matters with them. The Cabinet Secretary also emphasised8 that the AIIB is a non-profit organisation and not a retail bank; it is owned by the countries that are members of it, raising capital in their own areas for the purposes of investment in Asia.

10. The Scottish Government’s 12 November note (Annexe A) stated that the consequence of the Scottish Parliament not agreeing to the instrument would be “a matter for the UK Government”. The Cabinet Secretary was invited to describe the potential impact of not agreeing the order. He told9 the Committee that it would be likely to mean that the UK Government would be unable to meet all the obligations set out in the international agreement for the bank’s establishment, the consequence being that the AIIB would be reluctant to engage with the financial and professional services sector in Scotland, because it would not have the protections that it would have in other countries.

11. At the conclusion of evidence-taking, the Cabinet Secretary moved the motion in the name of Paul Wheelhouse, Minister for Community Safety and Legal Affairs: S4M-14396—That the Justice Committee recommends that the International Organisations (Immunities and Privileges) (Scotland) Amendment Order 2015 [draft] be approved.

12. No debate followed on the motion, which was agreed to (by division: For 8, Against 1, Abstentions 0).

Recommendation

The Justice Committee therefore recommends to the Parliament that it approve the draft instrument, having regard to the explanations and assurances provided in evidence by the Scottish Government (as outlined above).

ANNEXE A

Letter from the Cabinet Secretary for Justice

During consideration of the International Organisations (Immunities and Privileges) (Scotland) Amendment Order 2015 (“the Order”), Committee members had a number of questions. In order to assist the Justice Committee to the fullest extent, I am writing to address those questions and set out more information. Since the Committee considered the Order, the equivalent Westminster Order has concluded its parliamentary progress. I hope that this updated information will assist the Committee.

In short, the UK Government has entered into international agreement to become a member of a new international organisation known as the Asian Infrastructure Investment Bank. The AIIB is a multilateral development bank owned by its 57 shareholders, the countries that are members of it. The AIIB’s aim is to “foster sustainable economic development in Asia”. The Bank will use its large capital base to raise debt on the financial markets at low rates. It will then use that money to lend to large infrastructure projects in Asia. Money is lent at a higher rate than the Bank borrowed it, so that the Bank covers its costs and the risk on its investment. The rate is still lower than the projects would find on the open market. Any profit made by the Bank is then reinvested in future projects. Despite the name, the AIIB is not an ordinary bank. It is countries, as shareholders, who will be involved – not ordinary individuals.

Certain aspects of the international agreement relate to devolved matters and it is for that reason that the Order was laid before the Scottish Parliament. More details are contained in the Annex to this letter. The Committee will reconsider the Order on 17 November when I will of course be happy to provide more information.

Michael Matheson
Cabinet Secretary for Justice
12 November 2015

Context - Westminster Order

The Order is a draft affirmative Order in Council to give effect in Scotland to international obligations to be entered into by the UK Government, so far as within devolved competence. The remainder of the obligations relate to reserved matters.

I attach a link to the international agreement as it was presented to Westminster. https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/457652/ AIIB_CM_9126_web_Accessible.pdf. This agreement contains details of contributions to the AIIB and its purpose, functions, structure, and governance.

The equivalent Westminster Order is the Asian Infrastructure Investment Bank (Immunities and Privileges) Order 2015. Committees in both Houses approved the Order, which was formally approved on 2 November 2015. The Privy Council will consider the Westminster Order in Council on 11 November 2015.

Privileges and immunities

Privileges and immunities are granted to international organisations to protect the independent exercise of their functions. Such organisations exist to benefit the international community and individual countries should not derive undue fiscal advantage from them.

The UK Government has determined that there is a functional need for the privileges and immunities to be conferred by this Order. Privileges and immunities create a level playing field for the international organisation. The AIIB and its staff, when exercising official functions, need to be free from undue influence in their affairs. However, the AIIB and its staff would be expected to comply with UK and Scots law while functioning in the UK. The privileges and immunities to be granted can all be waived by the AIIB at any time. Where appropriate, the UK would seek, and expect, such a waiver from the AIIB.

The privileges and immunities in the Order mirror the equivalent provisions in the Westminster Order and may be summarised as follows:

Organisation

  • immunity from suit and legal process, subject to exceptions
  • inviolability of Archives and premises, in accordance with the Vienna Convention on Diplomatic Relations
  • relief from non-domestic rates
  • exemption from devolved and local taxes
  • exemption from prohibition and restriction on imports and exports

Individuals

  • immunity from suit and legal process in respect of official duties
  • exemption from devolved and local taxes

Immunities and privileges for other international organisations

The Asian Infrastructure Investment Bank is a new multilateral development bank. Other multilateral development banks which bear most resemblance to the AIIB include: the Caribbean Development Bank (CDB), the Asian Development Bank (ADB); Inter-American Development Bank (IADB); and the European Bank for Reconstruction and Development. These organisations are afforded privileges and immunities across the UK, including in Scotland, similar to those which are currently sought. This pre-dates devolution.

Since devolution, two separate Orders have been made in respect of Scotland: the International Organisations (Immunities and Privileges) (Scotland) Order 2009; and an amending Order of 2010. As amended, the 2009 Order lists 15 organisations and the purpose of this Order is to add a new organisation to that list.

UK Government

Members of the Committee asked what the UK Government will do if the Order is not passed in Scotland. This is a matter for the UK Government.


Any links to external websites in this report were working correctly at the time of publication. However, the Scottish Parliament cannot accept responsibility for content on external websites.

Footnotes:

1 http://www.legislation.gov.uk/sdsi/2015/9780111029299/pdfs/sdsipn_9780111029299_en.pdf

2 Scottish Parliament Justice Committee. Official Report 27 October 2015 Col 11. Available at: http://www.scottish.parliament.uk/S4_JusticeCommittee/Reports/JS042015R19.pdf

3 ie the second sentence of Rule 10.6.4 of Standing Orders

4 http://www.scottish.parliament.uk/S4_JusticeCommittee/General%20Documents/20151113SFE.pdf

5 Scottish Parliament Justice Committee. Official Report 17 November 2015 Col 1,2,3. Available at: http://www.scottish.parliament.uk/parliamentarybusiness/report.aspx?r=10217&mode=pdf

6 Scottish Parliament Justice Committee. Official Report 17 November 2015 Col 7. Available at: http://www.scottish.parliament.uk/parliamentarybusiness/report.aspx?r=10217&mode=pdf

7 Scottish Parliament Justice Committee. Official Report 17 November 2015 Col 4. Available at: http://www.scottish.parliament.uk/parliamentarybusiness/report.aspx?r=10217&mode=pdf

8 Scottish Parliament Justice Committee. Official Report 17 November 2015 Col 7. Available at: http://www.scottish.parliament.uk/parliamentarybusiness/report.aspx?r=10217&mode=pdf

9 Scottish Parliament Justice Committee. Official Report 17 November 2015 Col 4. Available at: http://www.scottish.parliament.uk/parliamentarybusiness/report.aspx?r=10217&mode=pdf

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