US Fails To Support OECD At G7 Summit

by Jeremy Hetherington-Gore, Tax-News.com, London

30 April 2001

US right-wing activists were yesterday greeting the absence from the G7's final communique of any wording in support of the OECD's 'unfair tax competition' campaign as a victory in their fight against the Paris-based organisation. For weeks, senior Republicans have been bombarding Paul O'Neill, US Treasury Secretary, with letters and articles telling him to ditch US support for the OECD. The G7 meeting had been seen as a key moment when the US could have been expected to respond to strong pressure from its European allies to reaffirm its belief in the OECD's work.

Everyone understands that the administration is in favour of less tax rather than more tax, more liberty rather than less liberty, and is negative towards the current statist, left-wing hegemony that is in charge in Europe. But everyone also understands that the career bureaucrats in the Treasury Department, like their peers in the Finance Ministries of other OECD countries around the world, are just interested in squeezing as much tax out of their citizens as they can get, and view the world of offshore as a criminal conspiracy against fiscal rectitude.

There is no bridging these two views; but for the last few years there hasn't needed to be a bridge, since the Clinton administration, as personified by academic Treasury Secretary Larry Summers, has fully supported the Europeans.

Seemingly, it should be an easy decision for Paul O'Neill; but this outspoken man, who promised not to rein in his tongue when he was appointed, has been strangely silent on this issue. In fact, there are good reasons for his silence, to be found in the role of the US as global leader.

Europeans still worry that the US could retreat into its one-time isolationism, and confuse US self-interest, as expressed for example in President Bush's Kyoto decision, with the country's past adolescent self-fixation, last expressed in the 1950's in a brief reaction to the horrors of the Second World War. The truth is that the US has been internationalist since the time of Maynard Keynes - in fact, this great economist, while fighting his corner for the British, helped considerably to strengthen Americans new understanding of themselves as global first movers.

So in discussing the US perspective on international affairs we are not dealing with a selfish country which has options to engage or not engage. The US has no choice any more. It is engaged, and will become more so; and every US politician of any stature knows this. Paul O'Neill is not only a politician of stature, he is also an international businessman, so he knows that 'globalisation', under attack in Quebec again last week, is no more an alternative strategy than was the development of lungs for non-aquatic mammals.

The misconcieved campaign mounted by the OECD flew in the face of globalisation by being partisan. Almost alone among the most prominent multilaterals, it is unrepresentative of the plurality of international states. The UN, the IMF, the World Bank, the WTO, are all representative; but not the OECD. It is a 'rich countries' club'. While the OECD restricted its activities to being a free-market pressure group during the last quarter of the 20th century it was an immense force for good, but when it allowed itself to become the instrument of a coterie of socialist finance ministers in the late '90s it went of the rails with a vengeance.

Globalisation implies transparency - it can't be otherwise. Countries have to be open towards each other in the new global village. That implies free(r) trade, exchange of information, relative honesty over a range of issues, international legislation, international tribunals and courts and so on. It's obvious that secretive tax havens don't fit with this vision, especially when they hold more than half of the world's wealth. Thus far, the OECD was correct; but it went too far in its attempt to rein in 'offshore' when it added tax to transparency.

So: you are Paul O'Neill. You are in favour of openness. You are against high taxation. You think Europeans are a bunch of protectionist anal retentives. You have every libertarian in the land telling you to nuke the OECD. You'd like to . . . yet you are responsible for the future of the world economy, and all week there has been a bunch of crazies up there in Quebec trying to halt globalisation in its tracks. The last thing you want to do is help them. WHAT DO YOU DO?

The G7 meeting this weekend was the moment when everyone expected the US to make its position clear on the OECD question, but the audience waited in vain. France and Germany in particular (who else!) pressed the United States on Saturday to renew its support for the OECD's and the FATF's war on money laundering and offshore finance centres, but to no effect.

French Finance Minister Laurent Fabius said glumly after the meeting: 'I told Paul O'Neill that for us this was an issue of vital importance. He told me he was reflecting.' He had raised the subject both during plenary sessions and also on a one-to one basis. 'Paul O'Neill does have a view on this,' said Mr Fabius, 'He's saying we must fight laundering but that we don't have to do it by saying what the right kind of tax regime should be. It's also true Paul O'Neill is very attentive to the idea that we should not be taking decision for other people in their place.'

German Finance Minister Hans Eichel had previously told reporters that his country hoped the G7 meeting would produce a renewed commitment from the United States to dispel the doubts.

A statement issued after the G7 meeting reiterated general support for the work of the FATF, which is concentrated on attacking money-laundering, but didn't mention the OECD (in effect, the FATF's parent) whose emphasis has been on tax competition. Mr O'Neill would not comment in response to questions on the subject during a post-meeting news conference.

Seiichi Kondo, the OECD's deputy secretary general, said: 'They (the Americans) said they could support transparency and effective disclosure of information but they want to review the ring-fencing part.

'I am sure they will eventually support our initiative. We are not advocating tax harmonisation or maintenance of high tax rates, so there is nothing they have to worry about.'

Paul O'Neill's studied silence at this weekend's meeting, taken together with his Deputy's clear rejection of any use of sanctions against the blacklisted countries at a private meeting two weeks ago, speaks volumes. He doesn't need to say any more, and perhaps he won't: the US is not going to help the OECD to change the tax regimes of offshore jurisdictions; and that seems now quite clear, speeches or no speeches from the US Treasury.

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