The Stanley Works U-turn could do long-term damage to the international business sector, the Opposition Leader warned yesterday.

Dr. Grant Gibbons said the toolmaker's decision to remain in the US could hinder the Island's ability to woo international business.

He also claimed a public relations blitz could be needed to repair Bermuda's overseas image in the wake of the Stanley Works controversy.

The Connecticut corporation, after a shareholder vote approved the move in May, said it would reincorporate in Bermuda to reduce up to $30 million a year in taxes paid on foreign earned income.

But the company, which had been plagued by dogged and widespread criticism since it announced its plans, has now said it will remain in New England.

Although the company only intended to have a nominal presence here, and with its primary business operation remaining in New Haven where it set up 159 years ago, Stanley CEO John Trani late last week bowed to political and media pressure which had branded the company as "unpatriotic".

Locally, only Dr. Gibbons and David Ezekiel, head of the Association of Bermuda International Companies (ABIC), responded to the news, despite calls made by The Royal Gazette to Government and various sectors of the business community.

Dr. Gibbons, who is also Shadow Finance Minister, said yesterday that although in the short term Stanley's decision could stay the media circus that has surrounded Bermuda as a magnet for companies wanting to reduce their tax levels, it could have an adverse affect on the Island's ability to attract international business in the long term.

"Our challenge is that the Bermuda name in the US has been closely associated with the negative publicity surrounding Stanley Works. And while (their decision) may not have much impact in the short term, Stanley's change in course may create more problems down the road as corporations may now think twice about offshore moves."

Dr. Gibbons said that there could be lasting consequences for Bermuda as both those companies that want to set up a nominal presence on the Island and companies that may want to run larger business operations may reconsider whether to set up in Bermuda in an effort to avoid the onslaught of criticism that Stanley Works came in for.

In the end Dr. Gibbons said it may also lead to the Island having to do some damage control: "A public relations effort in Washington, to rebuild our image, may be required, and in the US Congress particularly," he said.

David Ezekiel, head of the Association of Bermuda International Companies (ABIC), told The Royal Gazette that Stanley Work's would be the one most impacted by the decision.

"It is unfortunate but more from their (Stanley's) point of view than from ours."

Mr. Ezekiel added that companies that set up a nominal presence on the Island, as Stanley Works had proposed, are not "bread and butter business" as are the companies that have a physical business presence here.

At a minimum Mr. Ezekiel said Stanley Works would be writing off the long and expensive process of moving its place of incorporation, or "corporate inversion" as the process has been dubbed,even though its shareholders would have benefited from the move.

"It has more to do with the climate and perception rather than what is in the best interest of shareholders. From a commercial point of view, this is unfortunate as it results from political rhetoric that has been negative." he said.

Mr. Ezekiel added that in some ways Stanley's decision could even be looked at as a positive for Bermuda which has come in for heavy negative publicity.

"If the focus shifts away from headquarter relocations to Bermuda; if that focus disappears, that has to be a good thing from our point of view," Mr. Ezekiel said.

Stanley's decision to halt its reincorporation came after a number of US companies, including Ingersoll-Rand and Nabors, completed similar corporate inversions. But at least one other company - Leucadia National - may reconsider its plan to reincorporate to Bermuda.

Although Leucadia, like Stanley, had secured shareholder approval, it told the New York Times this week that it may back down on its move. Leucadia has until 2005 to make a final decision on whether or not to shift its incorporation to the Island.

Ultimately the furore over corporate inversions, and in an election year, has sparked draft legislation being introduced in the US House and Senate to block the moves. And in the last fortnight both bodies passed measures which would deny federal contracts to companies that move offshore.

On that score, Dr. Gibbons said: "While cooler heads in the US have said the US tax code is at fault, not Bermuda, for these corporate inversions, it still very worrying when attached to symbols of unpatriotic corporate activity."

He added: "We have become a little bit of a political football in this re-election period and the consequences clearly can't be good for Bermuda but it is still too early to say what the fall out or impact will be because we are not through legislative process in US."

Meanwhile, Mr. Ezekiel said the measure's impact would depend on which companies were targeted.

"It will have some impact but not a great one if restricted to those companies who only transfer their nominal headquarters to Bermuda.

"The measure is unlikely to impact the majority of ABIC members who make up most of the major `physical presence' companies in Bermuda. (As) it is these companies that generate the lions share of income to the Bermuda economy from the international (business) sector," he concluded.