on Bermuda's negotiations with the Organisation of Economic Cooperation and Development: As all of us in this Honourable House are aware Bermuda's status as a centre for international business has been under threat for some time now from several directions.

Well-respected international organisations such as the Organisation for Economic Cooperation and Development, the European Union and the G-7 group of countries have reacted strongly to the pressure that is being placed on the economies of some large nations by the forces of globalisation. They are looking closely at nations that make it easy for people to launder the proceeds of crime. They are looking closely at nations that do not properly oversee the activities of large financial institutions.

The OECD in particular is looking at what it describes as unfair tax competition from countries whose tax regimes are designed to attract mobile capital and allow the evasion of taxes.

Bermuda does not allow the laundering of money and Bermuda does regulate the activities of its financial institutions in a proper manner. However, we believe that we attracted the attention of international organisations studying harmful tax competition because our tax regime is unlike most others.

We tax consumption, not income. It is sometimes hard to persuade outside observers not familiar with that kind of system that it has not been set up to make our tax regime more attractive than others. Therefore, the study of harmful tax competition being carried out by the OECD was a serious concern for Bermuda.

The OECD began its work in 1998 by listing a series of practices that technically define a country as a tax haven when coupled with: The practice of imposing no taxes, or very low taxes.

The practice of failing to be transparent in dealings with international business - or in other words, allowing a wall of secrecy to be constructed around the activities of their international clients.

The practice of failing to allow and exchange of information with the authorities of other countries about the activities of international clients.

The practice of offering preferential tax treatment to companies that, apart from the fact of their domicile for tax purposes, would have no other substantial activity in that country.

It will be remembered that the OECD made arrangements to review the methods of operation of a large number of countries -- those most often thought of in the popular imagination as tax havens.

They warned those countries that unless they gave a commitment to amend any tax practice judged in the review process to be harmful, they would be included in a list of tax havens against which international sanctions were likely to be imposed. Those sanctions might include the cancellation of international treaties, the imposition of withholding tax against organisations doing business in those countries or insistence on stringent reporting requirements for companies doing business in those countries.

The likely result of such sanctions would be serious economic impairment for the targeted countries. In order to avoid the possibility of such measures against Bermuda, the Government has worked closely with its partners in the business community to address the challenges raised by the OECD.

We all know the outcome of our work: the OECD did not list Bermuda as a tax haven. Bermuda is one of six countries that have given an advanced commitment to the OECD to adhere to its principles of fair tax competition and transparency. The OECD published our letter of commitment, together with those of the Cayman Islands, Cyprus, Malta, Mauritius and San Marino, on 19 June, a week before the publication of the report on their review of tax havens and harmful tax practices.

The letter of commitment signed by all six nations was a form letter drafted by the OECD itself. Bermuda did send a covering letter to the OECD to go with the letter of compliance. In that letter, we said: "This commitment is made mindful of the fact that Bermuda is not a country that practices harmful tax competition, but conducts legitimate business. Furthermore, this Government takes seriously its stated willingness to enter into programmes of effective exchange of information in tax matters in a form that is mutually agreed and beneficial.'' In the annex to our commitment letter to the OECD, the government carefully set out the manner in which it proposes to implement its adherence to the principles contained in the OECD report.

Mr. Speaker, the annex spells out the commitment in three areas: effective exchange of information; transparency in business; and substantial activity in respect of international businesses established in Bermuda.

With respect to effective exchange of information, the Government has committed to: Adopting further legal mechanisms that allow tax information to be exchanged with other jurisdictions in a more timely and effective manner. These mechanisms will be similar to the 1986 tax information exchange agreement that Bermuda has with the United States of America.

Adopting and/or enhancing legal mechanisms that allow our regulatory authorities to exchange information relevant to tax cases including information on beneficial ownership and bank information.

Continuing to permit on-site inspection by representatives of other tax authorities.

With respect to transparency, the Government has committed to: Continue to support legal mechanisms that provide access to information about beneficial owners of entities formed in Bermuda. This is completely in alignment with Bermuda's demonstrated principle of "know your customer.'' Introduce and/or amend company legislation by 2003 to require the filing or auditing of company accounts and access by appropriate Bermuda authorities to such accounts. This requirement would apply equally to local and international companies in all spheres of activity.

With respect to substantial activity, the last item in the annex, the Government has committed to: Continuing to apply essentially the same regulations and taxes to both local and international entities.

An expanded but carefully planned integration of our domestic economy into the global economy by allowing international companies to participate in previously sheltered sectors of the economy but subject to appropriate considerations for small business and/or considerations of a strategic or national concern.

The Government has already established a joint Government and private sector committee to review this issue in the context of the structure of related regulations affecting the local economy, and we asked that committee to make recommendations to us by June 2000. Adopted recommendations will be implemented by December 2003 in respect of the financial sector and by December 2005 for other sectors of the economy.

In anticipation, Mr. Speaker, that I would otherwise be asked the question a hundred times over before lunch, I hasten to say that this will not mean that Bermuda's merchants are suddenly going to find themselves competing with multi-national department stores, or that another door had been opened to franchise-type restaurants.

What it does mean, Mr. Speaker, is that Bermuda is going through a process of re-configuration in order to mould ourselves into a shape a little more in keeping with the realities of life in the 21st Century. We intend to do this without altering in any substantial way the protections that have been built in to the Bermuda system in consideration of our tiny size.

Mr. Speaker, that is the scope of our commitment to the OECD.

I said earlier on that we had negotiated every step of the way with the OECD, and others, in cooperation with members of the local business community. We are committed to continuing in the same fashion. The business community, the Government and the larger community are all in this together, and we intend to get through it together. It is our aim in the Ministry of Finance to be on terms with the business community in the year 2005 that are certainly no worse than those that obtained at the beginning of this exercise in 1998.

When the OECD's report was published on June 25, many may have noticed that there was a long list of practices in preferential tax regimes among the members of the OECD themselves, that were flagged as harmful, and that require change. These include such nations as Australia, Belgium, France, Italy, Switzerland and the United States.

I say that to underscore this important point: The OECD has not demanded a single change to Bermuda's tax structure.

I see that as an important victory, because it means that the OECD has recognised our system of taxation as legitimate, as fair and as principled in the context of the global economy.

I made that point in my address to the OECD Symposium in Paris last week. I do not intend to read that speech to you today, but it is available to any Honourable Member who wishes to have a look.

Mr. Speaker, I feel I should end by enlarging upon a point I made at the beginning of this statement.

The process in which we are involved -- whether the OECD's look at Harmful Tax Competition, the G-7's study of money laundering or the UK's study of the oversight of financial institutions in the Overseas Territories -- should not be seen in simplistic terms.

Although it may be difficult for some countries that are involved in international business to accept, there is no doubt that we are living through a period of very necessary repairs being made to a global economic system that had allowed itself to lose touch with the economic realities of the 21st Century. If there had been no repair, the system would inevitably have failed, and all of us would have been in serious trouble.

I believe Bermuda will emerge at the other end of this process much stronger than we were at the beginning. After years of intense scrutiny, our tax and regulatory systems have been recognised internationally as efficient and effective -- just as we always said they were. We have come under intense pressure to do better, and I believe we have risen and will continue to rise to the occasion and become a better international financial centre than we were before.

I believe we will fare far better than will most of our competitors.

And the upshot of all these factors will be, I believe that our reputation as the world's premier international financial centre will grow and become stronger.

The future, it seems to me, has never looked brighter.