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AFX European Focus

January 29, 2001 Monday

Tax haven talks threaten to collapse as
OECD refuses to budge on sanctions

     London -- The Organisation for Economic Co-operation and Development (OECD) may be forced to drop its July 31 deadline for sanctions against alleged tax havens if it is to resolve a deadlock in talks to end what it calls "harmful" tax practices. 

     The talks over the weekend in London with a range of countries, mostly small Caribbean and Pacific island states, are at risk of running into a wall if the OECD does not back off, according to negotiators from those countries. And in the most extreme case that could lead to action at the World Trade Organisation against the OECD and its member states, they say.

     "If while we are taking part in constructive engagement, counter measures were taken even when proposals are on the table," that would suggest bad faith on the part of the 29-member OECD, said Owen Arthur, Barbados' prime minister and co-chair of the discussions.

     "I'm involved with this in good faith. I can't speak in candour if I don't tell you this is a matter of life or death for us, and we're in a true and genuine process of consultation."

     Arthur said he wanted to avoid setting up a "doomsday scenario" involving appeals to external bodies like the WTO which could become self-fulfilling. But he went on: "If the talks are exhausted, and we have to go to a global forum, we are sovereign countries. That's our decision."

     According to sources close to the talks, which are co-sponsored by the OECD and the Commonwealth Secretariat, however, the OECD is insisting that it is coming under pressure from member states to put its foot down. 

     If the countries, which it named in a statement on "harmful tax competition" in June last year, do not sign up to its programme, the organisation indicated during the weekend's talks that it is under pressure from the U.S. to ditch the talks and simply impose the July 31 deadline with no further discussion. 

     It remains unclear whether the U.S. position is simply a continuation of Clinton administration policy -- during which Treasury Secretary Larry Summers was a prime mover in the OECD's "harmful tax practices" initiative -- or represents an attempt to force the hand of the incoming Bush team, as some U.S. tax lobbyists claim. 

     In the event, the talks ended with both sides having laid out their position but little rapprochement in the effort to turn three principles laid out by the OECD -- transparency, non-discrimination and the exchange of information -- into workable political commitments.

     OECD officials would not say whether there was a mandate to shift the deadline. Tony Hinton, Australia's ambassador to the organisation and co-chair of the talks, said the working group's remit is to examine positions, draw up possible ways forward and then report back to the principals who could decide on action to be taken.

     The OECD understands it needs to consult more widely, he said, although he refused to specify whether the consultations could lead to changes in the OECD's thinking. "My personal judgement is that this process has involved substantial input on the OECD's thinking from non members," he said.

     Mr Arthur said the talks needed to continue, and should proceed in mid-February at a meeting in Tokyo of Pacific states named by the OECD. While the Commonwealth and the non-OECD members of the 13-strong working party which met in London are expecting to take the discussions up there, the OECD has yet to formally invite them, sources said. 

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