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Washington 24 April 2001

Caribbean Leaders Urge Bush To
Withdraw OECD Support

by Mike Godfrey

     During the Third Summit of the Americas in Quebec at the weekend, the leaders of 14 Caribbean states met with US President, George W Bush, in an attempt to persuade him to call an end to the OECD 'harmful tax competition scheme' via a presentation made on behalf of all the Caribbean governments by the Prime Minister of Antigua and Barbuda, Lester Bird.

     In his address, Prime Minister Bird argued that the scheme 'has its genesis in the left-wing ideologies of certain European Treasury Departments that believe in the notion of high taxation. These idealogues have caused the European member nations of the OECD to be the highest taxed nations of the world.' He argued that they cannot continue to impose more taxes on their public for fear of not being re-elected, and have decided to set their sights on the low tax, or no tax, territories instead.

     Mr Bird accused the US itself of being guilty of practising harmful tax competition under the criteria set by the OECD. He charged that the US has benefited from huge sums of money circulating its banking system since the 1920s thanks to 'the depositories for hundreds of billions of dollars from non-residents whose interest income is not taxed.' If the OECD scheme is fully imposed, the US would be forced to change this "no tax" policy and Mr Bird said 'it is most unlikely that this huge sum of money would remain in the US banking system.' 

     Prime Minister Bird then urged President Bush to recognise that most of the blacklisted Caribbean states were encouraged to diversify their economy by shifting the bulk of their economic activity into the arena of financial services enabling them to become more self-sufficient and reducing their dependency on foreign aid. He said: 'Having done so, we are now being penalised for becoming too good at it.'

     He concluded his plea by acknowledging that President Bush had inherited this hot political potato and urged him to consider reviewing the scheme by not consenting to the 'imposition of sanctions against your friends and allies.'

     The full text of Prime Minister Bird's speech is as follows: 

     SPEAKING NOTES ON OECD FOR MEETING WITH US PRESIDENT GEORGE W BUSH ON FRIDAY, 20TH APRIL IN QUEBEC CITY, CANADA (Prime Minister Lester B Bird of Antigua and Barbuda on behalf of the Caribbean States)

     Mr President

     Let me first join my colleagues in expressing our appreciation to you and Secretary of State Powell for this opportunity to exchange views with you on issues of mutual importance.

     I have been asked to present our case with regard to the Organisation for Economic Cooperation and Development (the OECD) and its harmful tax competition scheme.

     This scheme poses an immediate and detrimental threat to nine of the fourteen countries represented at this table. If it is allowed to continue, it will eventually engulf all of them.

     Presently, the target of the OECD's scheme is 41 jurisdictions around the world - many of them small states in the Caribbean, the Pacific and the Mediterranean. However, its stated objectives will bring the OECD into conflict with many jurisdictions around the world including many in Latin America, Asia and Europe.

     We believe that as the scheme implements the measures set out in a 1998 OECD Ministerial Report, it will pose a threat to the United States as well.

     Basically, the scheme claims that competition in taxation is harmful. In making this claim, it shows itself in favour of the heavy hand of government. For, the OECD is the champion of competition in every other field - in trade, in telecommunications, in ideas - but not in taxation.

     The scheme has its genesis in the left-wing ideologies of certain European Treasury Departments that believe in the notion of high taxation. These ideologues have caused the European member nations of the OECD to be the highest taxed nations of the world. Unable to tax their populations any further without running the risk of not being re-elected, they have decided to set upon companies and persons whose investments attract either low tax or no tax from foreign jurisdictions. The purpose is to force elected governments and legislatures to fix tax rates within a framework dictated by the OECD for the benefit of some OECD members.

     I say "some" OECD members because at least two of the thirty OECD member states are openly antagonistic to the scheme. Other OECD members are also known to be sceptical about it, but are less publicly vocal in their opposition.

     By the criteria set by the OECD, the United States is now guilty of practising harmful tax competition. One case in point is that Banks in the US are the depositories for hundreds of billions of dollars from non-residents whose interest income is not taxed. Resident interest income is taxed at 30%. This "no tax" policy of the US has kept this large sum of money in the banking system since 1921.

     If the OECD scheme is fully implemented, the US will have to change its "no tax" policy and it is most unlikely that this huge sum of money would remain in the US banking system.

     In part, it is because the ideologues in the OECD recognised that the US Congress would never abide changing this "no tax" policy on non-resident deposits in US banks, that they started off their harmful tax competition scheme by focussing first on "geographically mobile services" such as offshore banking units, captive insurance regimes, and international shipping.

     Conveniently, by concentrating on these areas first, the OECD was also able to focus on what appears to them to be 41 small, weak and powerless jurisdictions. So far, they have been able to coerce eight of them into signing letters committing to the elimination of so-called harmful tax practices in their jurisdictions.

     In the event, the OECD is threatening that its thirty member states, including the United States, will impose sanctions on 31st July this year against any jurisdiction that does not sign the commitment letters demanded by the OECD.

     I will not labour over the process by which the OECD arrived at the 41 jurisdictions that it has publicly named as tax havens and threatened with sanctions. Suffice to say that the OECD has itself admitted that the process is flawed. It was unilateral and arbitrary and its objectives fly in the face of international law and internationally accepted norms and practices.

     The targeted jurisdictions have attempted to work with the OECD to resolve the problem. A Joint Working Group of the OECD and non-OECD countries met twice in January and February. However, the OECD rejected proposals from the non-OECD jurisdictions for the creation of a genuinely inclusive international forum at which the legitimate interests of all nations could be represented.

     Nonetheless, the non-OECD countries, and certainly the nine affected Caribbean jurisdictions remain ready to continue a meaningful dialogue with the purpose of finding a mutually acceptable solution to the issue.

     There are two things that we would like you to bear in mind, Mr President.

     First, this issue of harmful tax competition has nothing whatsoever to do with money laundering and other financial crime. That matter is being handled by another G7 organisation, the Financial Action Task Force (FATF). All our countries have been working closely with the FATF to ensure that we are all fully cooperative in the fight against money laundering.

     Second, our countries went into financial services because for the most part, we have economies whose survival is based on only one economic activity. We were urged by international financial institutions and some member countries of the OECD to go into financial services to diversify our economies to reduce our dependency on aid. Having done so, we are now being penalised for becoming too good at it. We recognise that we cannot compete well in everything. We have accepted that we will be the losers in trade in most agricultural and manufactured goods. But, we do believe that we can compete in services, and by doing so, free others of the burden of having to provide for us. We believe that we can stem the trickle of refugees from our region and ensure that it never becomes a tide; we believe that we can curtail support for drug trafficking and give our people an alternative income; we believe that we can make our economies give to the world and not have to take from it.

     But, schemes such as the OECD's harmful tax competition will halt us in our tracks.

     We know that you inherited this OECD scheme from your predecessor. We have all been in that place where a leader holds a particularly hot potato passed by the guy who went before him.

     Our hope Mr President is that you will drop it, and by doing so, help us and help the United States.

     At the very least, we would be grateful if you would let the OECD know that your administration will review this scheme, and will not agree to the imposition of sanctions against your friends and allies. We hope that if you find that there are any elements in the OECD scheme worth salvaging, we might do so together in a spirit of multilateral cooperation.


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