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The International Herald Tribune

Tuesday, April 17, 2001

 From Inside, U.S. Can Tweak Tax Pact

by Reginald Dale

     WASHINGTON A small but energetic group of activists in Washington is promising to deliver "the next Kyoto," by which they mean another U.S. rejection of an international agreement backed by much of the rest of the world.

     The object of the activists' anger is a crackdown by the Paris-based Organization for Economic Cooperation and Development on the proliferating tax havens that stand accused of bleeding governments of tax revenue as capital flows ever more easily across international borders.

     Just like President George W. Bush's repudiation of the Kyoto protocol on global warming, U.S. withdrawal from the OECD project would be widely seen as signaling his administration's unwillingness to engage in international cooperation on matters deemed important by other countries. It would dismay many of Washington's best allies.

     Negotiations to encourage tax havens to cooperate with the OECD program are well advanced, but a key moment is approaching with completion due by July 31 of a list of "uncooperative" jurisdictions. Offenders will be subject to financial sanctions by the organization's 30 members, which include all the leading industrial countries.

     The plan's many advocates say it will do the world a big service by countering the "harmful tax competition" that is widely seen as unfairly draining capital from higher-tax countries to jurisdictions that impose few or no taxes and cloak questionable activities of corporations and individuals in impenetrable secrecy.

     But the plan is anathema to some Americans, who accuse high-tax countries like France and Germany of plotting a global cartel to force tax rates upward. Basic rights to privacy will be violated, they argue, while countries will be deprived of sovereignty over their own tax systems and threatened with discriminatory sanctions that violate World Trade Organization rules.

     Although the protest campaign appeals mainly to anti-tax conservatives, it has also won support from members of the Congressional Black Caucus, concerned that the OECD program will ruin the livelihood of Caribbean islands.

     As a result, says Andrew Quinlan of the Center for Freedom and Prosperity, 50 members of Congress from left and right have written to Paul O'Neill, the Treasury secretary, urging him to dump the program. If not, Congress could withdraw funding from the OECD.

     The issue is rapidly becoming a serious test of Mr. O'Neill's commitment to international collaboration, with activists optimistic that he will be converted to their cause, if support for the organization among Treasury bureaucrats can be overcome. Mr. O'Neill has said he will review the program, but his pronouncements so far have been somewhat ambiguous.

     Seiichi Kondo, deputy secretary of the OECD, is confident that Mr. O'Neill will stay with the program once it has been made clear to him that the aim is not to discourage lower taxes or restrict tax competition.

     The organization is not trying to dictate countries' tax rates, Mr. Kondo says, pointing out that both Bermuda and the Cayman Islands, where tax rates are zero, have won OECD approval.

     Some of the opponents' objections have the hysterical tone common to conspiracy theories, such as those alleging that the United Nations has dispatched black helicopters to the United States. One totally false accusation is that the OECD, egged on by the high-tax countries, is attempting to establish an all-pervasive "global tax authority."

     In a letter to Mr. O'Neill, Senator Richard Sheldon, Republican of Alabama, accuses the organization of trying to halt all flows of foreign investment into the low-tax United States - an amazing allegation considering that the OECD has no enforcement powers other than those of its member governments and that the United States is its most powerful member.

     So what is the OECD up to? Mr. Kondo says the aim is simply information exchange and transparency: Tax havens should agree to disclose personal and corporate financial information in response to specific requests from interested governments, if they cannot get the information any other way.

     There is now less grandiose talk of managing globalization, less focus on low tax rates as a problem in themselves. Business, at first suspicious, is rallying to the plan. It is not the monstrosity its critics fear. It will be better if the United States keeps trying to improve the plan from the inside. "Another Kyoto" should not be necessary.


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