Government officials said yesterday that fears that US presidential hopeful John Kerry's Bermuda-bashing could wreak havoc on the Island's reputation have been blown out of proportion.

Sen. Kerry, the certain Democratic nominee for the Oval Office, has vowed in several speeches given along the campaign trail to shut down the so-called 'Bermuda tax loophole' enabling companies to invert their place of incorporation offshore to trim their US tax bills.

But Government officials, speaking on condition of anonymity, said it was important to separate what was, in effect, campaign rhetoric from Sen. Kerry's track record of supporting free trade policies.

They said Sen. Kerry had, during his 19-year career in the Senate, proven that he was unlikely to espouse "protectionist" policy if elected president.

"Kerry has voted for every free trade agreement," one of the officials said.

Instead, Sen. Kerry's Bermuda bashing should be seen not as a ploy to win votes from the average American but as an appeal to organised labour, knowing he needs the support of the unions if he is to make a successful bid for president.

Yesterday's statements came as Bermuda aims to increase its economic diplomacy in the US and elsewhere.

Ken Levine, who has been lobbying in Washington on Bermuda's behalf since the late 1980s, and Government chief economic advisor Dr. Andrew Brimmer were on the Island this week to brief Cabinet.

It is understood that they will advise Government that draft legislation being touted since 2002 by Senate Finance Committee members Sen. Charles Grassley and Sen. Max Baucus that aimed to limit tax benefits for "file folder inversions" by treating these corporations as US entities, could well be passed before the end of the year.

But the net impact of the legislation - which has been tacked on to another bill, thereby increasing its chance of being made law - was negligible as the wave of corporate inversions had been stayed three years ago.

A wave of high-profile US corporations shifted their place of incorporation to Bermuda in 2000 and 2001. The most publicised of the companies trying to invert was Stanley Works, but the hardware giant backed down on those plans after it came under heated attack from the media and US legislators.

Although corporate inversions are often mentioned in Sen. Kerry's political rhetoric, prohibitive capital gains tax levels put in place in recent years as well as political pressure have stemmed the exodus of US companies overseas.

"The problem does not exist anymore," said one official, and added that even when the controversial transactions were taking place, it was not a Bermuda, but a US issue.

"This is an internal US tax debate; it does not matter from a Bermuda perspective."

He said the real issue was the American tax code that puts US corporations at a disadvantage against international rivals because of a tax system that levies taxes on both domestic and worldwide income.

However, Finance Minister Paula Cox said yesterday that Government was not taking a sit-back-and-wait attitude.

She said quiet, "back door corridor" meetings were taking place.

Ms Cox, in her delivery of the 2004 Budget last month, said the Government had set aside extra funds to spearhead a new campaign of "economic diplomacy".

Yesterday she said Government recognised the importance of building relationships with key decision makers on Capitol Hill. But she said Government took the view that a high-profile lobby effort could be self-defeating, instead taking the "prudent" approach of keeping its actions out of the public eye.

"We all shudder when we see our name bandied about in an erroneous fashion," she said, promising that Government was carefully building relationships with Congress members and taking part in key briefings in the US.