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Bermuda (10/04)


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For the most current version of this Note, see Background Notes A-Z.

Flag of Bermuda is red, with the flag of the United Kingdom in the upper hoist-side quadrant and the Bermudian coat of arms centered on the outer half of the flag. (Bermudian coat of arms is white and green shield with a red lion holding a scrolled shield showing the sinking of the ship Sea Venture off Bermuda in 1609.) 2004.

PROFILE

OFFICIAL NAME:
Bermuda

Geography
Area: 58.8 sq. km. (22.7 sq. mi.).
Cities (2000 census): Capital--Hamilton (pop. 3,461). Other city--St. George (pop. 3,306).
Terrain: Hilly islands.
Climate: Semi-tropical.

People
Nationality: Noun and adjective--Bermudian(s).
Population (2004 est.): 64,935.
Annual growth rate (2003 est.): 0.72%.
Ethnic groups: Black 55%, white 34%, mixed 7%, other and not stated 4%.
Religions (2000): Anglican 23%, Roman Catholic 15%, African Methodist Episcopal 11%, 7th Day Adventist 7%, Methodist 4%, other 40% (none or not stated).
Language: English.
Education: Years compulsory--to age 16. Literacy survey results are anticipated in 2005.
Health (2001 est.): Infant mortality rate--3.6 per thousand. Life expectancy--men 75.38 yrs., women 79.49 yrs.
Work force (2002): Professional and technical--20%. Production, transport, and related--18%. Clerical—20%. Services--19%. Administrative and managerial--14%. Sales--7%. Agriculture and fishing--2%.

Government
Type: British Overseas Territory with significant autonomy.
Constitution: June 8, 1968; amended 1989 and 2003.
Branches: Executive--British monarch (head of state, represented by a governor). Legislative--Senate (upper house), House of Assembly (lower house). Judicial--Supreme Court.
Subdivisions: Nine parishes.
Political parties: Progressive Labor Party (PLP), United Bermuda Party (UBP), National Liberal Party (NLP).
Suffrage: Universal at 18.

Economy
GDP (nominal): Provisional estimates for 2002, $3.75 billion; 15.8% ($593.2 million) from international companies, 12.9% ($484 million) from real estate and rental, 12.6% ($470.8 million) from financial intermediation, 9.4% ($351.5 million) from wholesale, retail trade and repair services, 6.3% ($237.7 million) from the hotel and restaurant sector, 6.1% ($230.5 million) from construction, and 36.9% ($1.38 billion) from other sectors.
GDP growth rate (2003): 2.5%.
Per capita nominal GDP (2002 prov.): $59,864.
Inflation rate (May 2004): 3.4%.
Natural resource: Limestone, used primarily for building.
Agriculture: Products--semitropical produce, dairy products, flowers, honey.
Industry: Types—re/insurance finance, tourism, structural concrete products, paints, perfumes, furniture.
Trade (2002 prov.): Exports (includes re-exports)--$57 million: semitropical produce, light manufactures. Imports--$746 million: food, clothing, household goods, chemicals, live animals, machinery, transport, and miscellaneous manufactures. Major suppliers--U.S. 76%, United Kingdom (U.K.) 5%, Canada 5%, Caribbean countries 3% (mostly oil from Netherlands Antilles), and other 11%.

HISTORICAL HIGHLIGHTS
Bermuda is an archipelago consisting of seven main islands and many smaller islands and islets lying about 1,050 kilometers (650 mi.) east of North Carolina. The main islands--with hilly terrain and subtropical climate--are clustered together, connected by bridges, and are considered to be a geographic unit, referred to as the Island of Bermuda.

Bermuda was discovered in 1503 by a Spanish explorer, Juan de Bermudez, who made no attempt to land because of the treacherous reef surrounding the uninhabited islands.

In 1609, a group of British colonists led by Sir George Somers was shipwrecked and stranded on the islands for 10 months. Their reports aroused great interest about the islands in England, and in 1612 King James extended the Charter of the Virginia Company to include them. Later that year, about 60 British colonists arrived and founded the town of St. George, the oldest continuously inhabited English-speaking settlement in the Western Hemisphere. When representative government was introduced to Bermuda in 1620, it became a self-governing colony.

Due to the islands' isolation, for many years Bermuda remained an outpost of 17th-century British civilization, with an economy based on the use of the islands' endemic cedar trees for shipbuilding and the salt trade. Hamilton, a centrally located port founded in 1790, became the seat of government in 1815.

Slaves from Africa were brought to Bermuda soon after the colony was established. The slave trade was outlawed in Bermuda in 1807, and all slaves were freed in 1834. Today, about 55% of Bermudians are of African descent.

The establishment of a formal constitution in 1968 bolstered internal self-government; debate about independence ensued, although a 1995 independence referendum was defeated. The current government re-opened the independence debate in 2004.

GOVERNMENT AND POLITICAL CONDITIONS
Bermuda is the oldest self-governing overseas territory in the British Commonwealth. Its 1968 constitution provides the island with formal responsibility for internal self-government, while the British Government retains responsibility for external affairs, defense, and security. The Bermudian Government is consulted on any international negotiations affecting the territory. Bermuda participates, through British delegations, in the UN and some of its specialized and related agencies.

Government Structure
Queen Elizabeth II is head of state and is represented in Bermuda by a governor, whom she appoints. Internally, Bermuda has a parliamentary system of government.

The premier is head of government and leader of the majority party in the House of Assembly. The cabinet is composed of ministers selected by the premier from among members of the House of Assembly and the Senate.

The 36-member House is elected from 36 electoral districts (one representative from each district) for a term not to exceed 5 years. The Senate, or reviewing house, serves concurrently with the House and has 11 members--five appointed by the governor in consultation with the premier, three by the opposition leader, and three at the governor's discretion.

The judiciary is composed of a chief justice and associate judges appointed by the governor. For administrative purposes, Bermuda is divided into nine parishes, with Hamilton and St. George considered autonomous corporations.

Political Conditions
Bermuda's first political party, the Progressive Labor Party (PLP), was formed in May 1963 with predominantly black adherents. In 1965, the two-party system was launched with the formation of the United Bermuda Party (UBP), which had the support of the majority of white voters and of some black voters. A third party, the Bermuda Democratic Party (BDP), was formed in the summer of 1967 with a splinter group from the PLP as a nucleus; it disbanded in 1970. It was later replaced by the National Liberal Party (NLP), which currently holds no parliamentary seats.

Bermuda's first election held on the basis of universal adult suffrage and equal voting took place on May 22, 1968; previously, the franchise had been limited to property owners. In the 1968 election, the UBP won 30 House of Assembly seats, while the PLP won 10 seats and the BDP lost the 3 seats it had previously held. The UBP continued to maintain control of the government, although by decreasing margins in the Assembly, until 1998 when the PLP won the general election for the first time.

Unsatisfied aspirations, particularly among young blacks, led to a brief civil disturbance in December 1977, following the execution of two men found guilty of the 1972-73 assassinations of Governor Sir Richard Sharples and four others. In the 1980s, the increasing prosperity of Bermudians, combined with limited land area, caused a housing shortage. Despite a general strike in 1981 and economic downturn in the early 1980s, Bermuda's social, political, and economic institutions remained stable.

Both political parties have discussed the possibility of complete independence. An independence referendum called by a sharply divided UBP in the summer of 1995 was resoundingly defeated and resulted in the resignation of the premier and UBP leader, Sir John Swan. Just over 58% of the electorate voted in the independence referendum, which had to be postponed one day due to disruptions caused by Hurricane Felix. Of those voting, over 73% voted against independence, while only 25% voted in favor. Vote results may have been distorted by the Progressive Labor Party (PLP) call to boycott the referendum.

Independence has been a plank in the platform of the PLP since the party's inception in 1963. In February 2004 Premier (and PLP party leader) Alex Scott announced his decision to commence an open and objective debate on the subject of independence from the U.K. Since that time, there has been only minimal discussion, with the focus more on the pros and cons of autonomy than on the mechanics of delivering independence. The international and local business communities appear to be taking a wait-and-see attitude.

Currently citizens of Britain's overseas territories, including Bermuda, are entitled to British citizenship. The British Overseas Territories Bill, passed in February 2002, provides automatic acquisition of British citizenship, including automatic transmission of citizenship to their children; the right of abode, including the right to live and work in the U.K. and the European Union (EU); the right not to exercise or to formally renounce British citizenship; and the right to use the fast track European Union/European Economic Area (EU/EEA) channel at the airport, free of U.K. immigration controls.

A March 2002 poll conducted by the Bermuda Sun, a local semiweekly newspaper, showed support for British citizenship. Of the 356 persons surveyed, 66.9% were interested in accepting British citizenship and only 18% said that they would refuse it. There are no conditions attached to the grant of British citizenship to the overseas territories, a fact of particular importance to Bermuda where the issue of independence lies dormant. A 1999 U.K. government White Paper states: "The new grant of British citizenship will not be a barrier, therefore, to those Overseas Territories choosing to become independent of Britain. Our Overseas Territories are British for as long as they wish to remain British. Britain has willingly granted independence where it has been requested; and we will continue to do so where this is an option."

Bermuda's most recent general election was held in July 2003, when the PLP was re-elected to its second term. Following the election, the more moderate Alex Scott replaced Jennifer Smith as premier and party leader in a leadership challenge.

Principal Government Officials
Head of State—Her Majesty, Queen Elizabeth II
Governor—His Excellency, Sir John Vereker, KCB
Premier—The Honorable William Alexander Scott, JP, MP

Bermuda's interests in the U.S. are represented by the United Kingdom, whose embassy is at 3100 Massachusetts Avenue, NW, Washington, DC 20008; tel: 202-588-6500; fax: 202-588-7870.

The Bermudian Government's Department of Tourism has offices in New York, Atlanta, Boston and Toronto.

ECONOMY
Bermuda has enjoyed steady economic prosperity since the end of World War II, although the island experienced a mild recession in 2001-02, paralleling the recession in the U.S. Bermuda enjoys one of the highest per capita incomes in the world. Its economy is based primarily upon international business and tourism. The Bermuda Monetary Authority (BMA) estimated that those two sectors represented 75% of the total balance of payments current account receipts of foreign exchange in the first three quarters of 2003. However, the role of international business in the economy is expanding, whereas that of tourism is contracting.

Bermuda is an offshore financial center with a robust financial regulatory system. The government cooperates with the United States and the international community to prevent money laundering and terrorist financing and continues to update its legislation and procedures in conformance with international standards. Bermuda first enacted specific money laundering legislation in 1997, passing the Proceeds of Crime Act (PCA) to apply money laundering controls to financial institutions such as banks, deposit companies, trust companies, and investment businesses, including broker-dealers and investment managers. Insurance companies are covered to the extent that they are judged susceptible to the risk of money laundering abuse. Amendments in 2000, effective June 1, 2001, expanded the scope of the legislation to cover the proceeds of all indictable offenses, including tax evasion, corruption, fraud, counterfeiting, theft, and forgery.

In December 2002, Parliament passed the Bermuda Monetary Authority Amendment Act 2002, expanding the list of BMA objectives to include action to combat financial crime. It underpins the BMA's existing role in checking systems and controls in financial institutions and paves the way for the BMA to expand its role in administering UN sanctions and other measures on a delegated basis. In order to implement provisions of relevant UN Security Council antiterrorism resolutions, the act—among other provisions—prescribes the manner by which the finance minister may delegate to the BMA the power to block accounts.

Bermuda enacted the Investment Business Act (IBA) in 1998 to regulate the island's financial services industry. In response to international directives, the government passed the Investment Business Act 2003 to further refine its terms. The act creates a balance between government regulation on the one hand and the competitive needs of Bermuda's most important industry--international business--on the other hand. By updating its regulatory framework, Bermuda has enhanced its reputation globally as an international standard-bearer. In return, international businesses registered in Bermuda are recognized as having met or surpassed the most stringent international criteria.

Bermuda is currently considering additional legislation to further enhance its compliance with international financial standards. The Bermuda Monetary Authority Amendment (No. 3) Act 2004 will clarify the authority of the BMA to respond to requests from overseas regulators for information about clients. The Collective Investment Scheme Act will institute a formal licensing regime for investment schemes.

By the end of 2003, 13,509 international companies were registered in Bermuda, many U.S.-owned. They are an important source of foreign exchange for the island, and spent an estimated $1.05 billion in Bermuda in 2002. The growing importance of international business is reflected in its increased share of GDP, up from 12.6% in 1996 to 16% in 2002 (provisional).

Historically important for employment and tax revenue, Bermuda's tourism industry is continuing to experience difficulties, although both the government and private sectors are working to improve it. In 1996, Bermuda welcomed 571,700 visitors to the island. By 2003, that figure had dropped to 482,673. Occupancy rates for 2002 averaged 55.1%, and were higher in the smaller hotels than at larger properties. Visitors contributed an estimated $475 million to the economy in 1996, but that figure declined to $342.5 million in 2003. Although per capita spending by air visitors rose to $333.5 million in 2001, the trend reversed in 2003, dropping to $291.8 million. Hurricane Fabian in September 2003 dealt another blow to the tourism industry.

Bermuda has little in the way of exports or manufacturing; almost all manufactured goods and foodstuffs must be imported. The value of imports rose from $551 million in 1994 to $746 million in 2002. The U.S. is Bermuda's primary trading partner, with $567.5 million in U.S. imports in 2002. The U.K., Canada, and the Caribbean countries (mainly the Netherlands Antilles) also are important trading partners. Exports from Bermuda, including imports into the small free port that are subsequently re-exported, increased from $35 million in 1993 to $57 million in 2002 (provisional).

Duty on imports is a major source of revenue for the Government of Bermuda. In 2003-04, the government obtained $187.1 million, or 27%, of its revenue base from imports. Heavy importation duties are reflected in retail prices. Even though import duties are high, wages have kept up for the most part with the cost of living, and poverty--by U.S. standards--appears to be practically nonexistent. Although Bermuda imposes no income, sales, or profit taxes, it does levy a real estate tax.

Bermuda is home to immigrants from other countries. According to the 2000 census, 79% of the population is Bermuda-born and 21% is foreign-born. U.K. immigrants comprise 28% of the immigrant population; U.S., 20% (although the U.S. Consulate estimates that the figure is closer to 40%); Canada, 15%; Caribbean, 12%; and Portugal/Azores, 10%. In February 1970, Bermuda converted from its former currency, the pound, to a decimal currency of dollars pegged to the U.S. dollar.

FOREIGN RELATIONS AND U.S.-BERMUDIAN RELATIONS
The United Kingdom is formally responsible for Bermuda's foreign and defense policy. U.S. policy toward the U.K. is the basis of U.S.-Bermudian relations. In the early 20th century, as modern transportation and communication systems developed, Bermuda became a popular destination for wealthy U.S., British, and Canadian tourists. While the tariff enacted in 1930 by the U.S. against its trading partners ended Bermuda's once-thriving agricultural export trade--primarily fresh vegetables to the U.S.--it helped spur the overseas territory to develop its tourist industry, which is second only to international business in terms of economic importance to the island.

During World War II, Bermuda became a significant U.S. military site because of its location in the Atlantic Ocean. In 1941, the U.S. signed a lend-lease agreement with the U.K. giving the British surplus U.S. Navy destroyers in exchange for 99-year lease rights to establish naval and air bases in Bermuda. The bases consisted of 5.8 square kilometers (2.25 sq. mi.) of land largely reclaimed from the sea. The U.S. Naval Air Station was on St. David's Island, while the U.S. Naval Air Station Annex was at the western end of the island in the Great Sound.

Both bases were closed in September 1995 (as were British and Canadian bases), and the lands were formally returned to the Government of Bermuda in 2002.

The Government of Bermuda has begun to pursue some international initiatives independent of the U.K. in recent years. Bermuda signed a cultural memorandum of understanding with Cuba in 2003. The island also joined the Caribbean Community (CARICOM) as an associate member in 2003. The U.S. Coast Guard provided search and rescue assistance immediately following Hurricane Fabian in September 2003 but Bermuda declined subsequent offers of reconstruction assistance from the U.S. and U.K., preferring to accept assistance from its Caribbean neighbors.

An estimated 7,500-8,000 U.S. citizens live in Bermuda, many of them employed in the international business community. There also are a large number of American businesses incorporated in Bermuda, although no actual figures are available. Despite the trend of American businesses moving to Bermuda or other offshore jurisdictions to escape U.S. taxes, Bermuda maintains that the island is not a "tax haven" and that it taxes both local and foreign businesses equally.

While U.S. visitors to Bermuda are critical to the island's tourism industry, the number of U.S. visitors to Bermuda is declining. Air arrivals from the U.S. declined by more than 30% between 1990 and 2000 and, in 2003, only 78% of air arrivals originated from the U.S. compared to 83.9% in 1990. The number of air and cruise passengers from the U.S. totaled 464,000 in 2000. That number fell to 409,293 American passengers in 2003. Another 2,300 Americans sailed to the island via private yacht in 2003.

In 2002, 76% of Bermuda's imports came from the U.S., up from 74% in 2000. Areas of opportunity for U.S. investment are principally in the re-insurance and financial services industries, although the former U.S. base lands also may present long-term investment opportunities.

Principal U.S. Officials
Acting Consul General-- Antoinette R. Boecker
Consul--Jill M. Esposito

The U.S. Consulate General is located at "Crown Hill," 16 Middle Road, Devonshire, just outside the City of Hamilton; tel: 441-295-1342; fax: 441-295-1592.



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