The withdrawal of US support for the Organisation for Economic Cooperation and Development's (OECD) clampdown on international tax havens means the July deadline for sanctions on those countries is all but dead.

The news came from Commonwealth secretary-general Don McKinnon in a Reuters report.

The London-headquartered Commonwealth consists of 56 mainly former British colonies, including over half of the countries blacklisted by the OECD last year. It also has four OECD members -- Britain, Australia, Canada and New Zealand.

US Treasury Secretary Paul O'Neill effectively torpedoed efforts by the 30-member OECD to end harmful tax practices in 35 countries it last year branded as "tax havens''.

In its current form, Mr. O'Neill said, the OECD's drive was far too broad and should narrow its focus to limited exchange of information about tax evaders.

The Paris-based OECD, a rich nations club which includes the United States as well as top tax havens Switzerland and Liechtenstein, had threatened to slap sanctions on the 35 offshore centres in July if they had not mended their ways by then.

"It is hard to see a sanctions regime now being imposed, although that is a matter for individual OECD members, given the lack of support from Washington,'' Mr. McKinnon said.

Mr. McKinnon insisted he was not defending illegal tax evasion but had always called for improved dialogue between the OECD and tax havens, or offshore financial centres (OFCs), to develop a common position on the issue.

He was generally satisfied with Mr. O'Neill's intervention. "I am pleased that we are not looking like a bus heading off a cliff. This will have a dramatic impact on the thinking within the OECD.

"I am basically supportive of the OECD but on this issue it has gone too far too fast and was not taking people with it.'' He said it had been clear the new administration of President George W. Bush would have a different approach to the issue of OFCs than the outgoing Clinton regime as it has on a number of other international issues.

"The first clear sign of the US pulling out was the removal of a paragraph about it (tax havens) from the recent G7 communique,'' he said, referring to a meeting of the Group of Seven leading industrial countries at the end of April.

US rejects OECD initiative This is the full text of a commentary by US Secretary of the Treasury Paul O'Neill which appeared last week in the Washington Times. Mr. O'Neill effectively signalled that the US would not support the Organisation for Economic Cooperation and Development's bid to "harmonise'' taxes around the world. Last year, Bermuda was left off a blacklist of offshore financial centres after it said it would meet several OECD requirements.

Recently, I have had cause to re-evaluate the United States' participation in the Organisation for Economic Cooperation and Development working group that targets "harmful tax practices''. Following up on the thoughts I shared with my counterparts from members of the Group of Seven major industrial countries at recent meetings, I want to make clear what is important to the United States and what is not.

Although the OECD has accomplished many great things over the years, I share many of the serious concerns that have been expressed recently about the direction of the OECD initiative. I am troubled by the underlying premise that low tax rates are somehow suspect and by the notion that any country, or group of countries, should interfere in any other country's decision about how to structure its own tax system. I also am concerned about the potentially unfair treatment of some non-OECD countries. The United States does not support efforts to dictate to any country what its own tax rates or tax system should be, and will not participate in any initiative to harmonize world tax systems.

The United States simply has no interest in stifling the competition that forces governments, like businesses, to create efficiencies.

In fact, the administration is actively working to lower tax rates for all Americans. After reducing our tax burden, we will turn our attention toward reforming our system to make it simpler and more efficient. On these principles the United States remains firm.

When I took my oath of office in January, I pledged faithfully to execute the laws of the United States. In its current form as established by Congress, the US tax code generally taxes income on a worldwide basis. We have an obligation to enforce our tax laws as written because failing to do so undermines the confidence of honest taxpaying Americans in the fairness of our tax system. We cannot turn a blind eye toward tax cheating in any form.

That means pursuing those who illegally evade taxes by hiding income in offshore accounts. In today's world of instant information on the Internet, offshore bank accounts are no longer an obscure perk of the very rich. Just type in "offshore brokerage account'' in any Internet search engine. The number of sites offering easy, affordable, secret offshore brokerage accounts for investing in US stocks is astonishing.

As one Internet site advertising offshore brokerage accounts in Dominica boasts: "US stocks, bonds, options, currencies and mutual funds are frequently bought through offshore companies because they are not liable to US capital gains taxes.'' Consider just how unfair this is to law-abiding US investors who invest in US stocks and pay taxes. The tax-evading US investor, investing in the very same US stocks through a secret offshore account, does not.

Anyone who doubts that the US needs information from offshore tax havens in order to prosecute tax evaders need look no further than the case of John Mathewson. Mr. Mathewson ran a bank in the Cayman Islands. When shut down in 1995, Mr. Mathewson had more than 1,000 customers and, according to Mr.

Mathewson, 95 percent of his customers were US citizens. With Mr. Mathewson's cooperation, the IRS obtained tax evasion convictions on, and collected substantial back taxes from, more than 20 of Mr. Mathewson's clients. These cases were made possible because of Mr. Mathewson's extraordinary cooperation.

Without it and without any tax information exchange agreement with the Cayman Islands this large-scale tax evasion would have gone unpunished.

To enforce our tax laws, we must have a multipronged strategy. If the United States believes a particular US taxpayer is illegally evading the US tax laws through the use of offshore entities or secret bank accounts, the United States must make every effort on our own to obtain the necessary information to enforce the US tax laws. In addition, the United States has negotiated individual treaties or agreements with more than 60 countries so it can obtain needed information in cases of tax evasion. Finally, in appropriate circumstances, organizations like the OECD can be used to build a framework for exchanging specific and limited information necessary for the prosecution of illegal activity. We do and will guard against overbroad information exchanges in which foreign governments seek information for improper purposes or without proper safeguards. We cannot tolerate those who cheat on their U.S.

taxes by hiding behind a cloak of secrecy.

Where we share common goals, we will continue to work with our G7 partners to achieve these goals. The work of this particular OECD initiative, however, must be refocused on the core element that is our common goal: the need for countries to be able to obtain specific information from other countries upon request in order to prevent the illegal evasion of their tax laws by the dishonest few. In its current form, the project is too broad and it is not in line with this administration's tax and economic priorities.