Editor?s note: This is the second in a two-part series.  (Part one can be read here.)

BERLIN ? In two days of closed-door meetings recently, an international bureaucracy of industrialized nations?whose membership is dominated by ?old Europe??was attempting to ?persuade? low-tax nations to raise taxes and eviscerate financial privacy.

The Paris-based Organization for Economic Cooperation and Development (OECD), which receives some $50 million annually from U.S. taxpayers, has for six years pushed for eliminating what it calls ?harmful tax competition??which can be best described as any policy that undermines the ability of welfare states like France, Belgium, and Germany to maintain extraordinarily high tax rates.

The stated goal of this project is to stamp out so-called ?tax havens??jurisdictions that have appealing tax and privacy laws, and thus attract investment capital and business from high-tax regions, primarily European welfare states. The OECD even has a blacklist, and has threatened these jurisdictions with financial protectionism.

The problem, at least from the OECD perspective, is that the jurisdictions they are targeting insist that they shouldn?t be forced to surrender their fiscal sovereignty until all nations and territories agree to the same policy.

This ?level playing field? requirement puts the Paris-based bureaucracy in a quandary since member countries such as Switzerland, Luxembourg, and even the United States, are tax havens under the OECD?s standards. Each has little to no taxes on non-resident investors, and those foreign investors generally can structure their affairs to avoid the reporting of their financial information to home country tax authorities.

Yet the OECD has been unsuccessful to date in ?persuading? its own tax haven members to adopt bad tax policy, in part because it is much more polite when dealing with its own member nations. There are no threats of protectionism and no blacklist. The bureaucrats apparently realize the futility in fighting nations that can fight back.

So it is little wonder that smaller nations like Panama and the Bahamas felt unduly picked upon when their supposed sin is adopting rules for foreign investment modeled on those of several OECD members.

Not helping matters for the OECD was the pesky presence of Dan Mitchell of the Heritage Foundation and Andy Quinlan of the Center for Freedom and Prosperity, who camped out at the same hotel where most of the conference participants were staying. 

Along with the Friedrich Naumann Foundation, the groups sponsored a forum on Wednesday, June 2, on the eve of the OECD conference, where two different panels spelled out precisely why the OECD?s claims that a ?level playing field? exists were, at best, intellectually dishonest.  To the extent any attendees needed a reminder that lower taxes are fundamentally sound economic policy, there was even a Swiss professor on hand to give a powerpoint-based lecture.

Representatives from several low-tax countries on the OECD?s hit list attended the free market event and told this journalist afterward that they had heard more than enough to convince them that the OECD was not playing fair.  And over the next two days, they stood their ground.

It appears that the OECD conference was doomed from the start.  Small countries not privileged enough to be included in the OECD were determined not to cave, particularly since OECD members like Switzerland probably never will.  The affair, ironically, was not terribly contentious, as low-tax nations politely smiled and nodded, but in the end, brushed off the tax cartel?s entreaties.

The OECD essentially admitted defeat, pushing back the date of the next meeting until sometime in autumn 2005. Continued...