A United States expert has warned Premier Jennifer Smith that the onshore selling of sections of Bermuda's offshore services has been far too weak.

And while the Island had set up attractive regulatory and legislative frameworks to make it a top-drawer jurisdiction, the strategic marketing to powerful bodies who could make or break the sector was now vital.

Expert Robert Ross is the executive director of the United States FSC/DISC Tax Association, and jetted onto the Island last Thursday before taking part in a whirlwind of meetings with political and business leaders.

The body he represents disseminates information on Foreign Sales Corporations or FSCs and also organises many major conferences each year for professionals.

A FSC (pronounced `fisc') is a company incorporated outside the US, in an approved jurisdiction like Bermuda, Barbados or the US Virgin Islands and given special tax treatment by the US Internal Revenue Service (IRS). The concept was introduced in the mid 1980s to promote the export of US-manufactured goods by granting certain incentives including a reduction of federal taxes on net earnings of exports and a possible cut to state taxes.

Bermuda's low corporate taxation complements other advantages it offers to the FSC owner, like its advantageous bankruptcy laws for leasing FSCs. Experts put the total number of FSCs in operation at about 8,000 in all jurisdictions but many believe another 10,000 US companies could gain economic benefit from establishing FSCs in one jurisdiction or another.

Mr. Ross said Bermuda has only managed to capture several hundred FSCs while Barbados has cornered around 2,000 with a more aggressive campaign.

The previous Government made concessions relating to the licensing fees of incorporating FSC companies in Bermuda, with a view of making Bermuda more competitive, but this has led to only limited success.

Bermuda became an approved jurisdiction for the domicile of FSCs in 1988, as a result of the US/Bermuda Tax Treaty. The FSC was introduced as a new tax incentive to replace Domestic International Sales Corporations (DISCs) which also provided tax exemption for exports. Mr. Ross' visit to Bermuda was to update the Bermuda FSC service providers on recent developments within the industry as well as confer with leaders on how Bermuda could improve its position in the market.

He also explored the possibility of organising conferences on the Island or in the US with Bermuda experts, to include topics like offshore domiciles, captive insurance companies, offshore trusts and mutual funds on the agenda.

He praised the "upward swing'' of the local international business and insurance market, -- clear just from the activity and construction around the central business district.

Meetings with the Premier and Bermuda International Business Association members were a success, he said.

"We kicked around some ideas that we thought might make sense. It's my interest as executive director of the body to have each jurisdiction getting the most business they can get and be as competitive as they can be.

"Bermuda is a very sophisticated market with an image that it might not be the cheapest but the infrastructure and talent here means the best service.

"One thing we are suggesting is to target companies already here or already looking at coming here and offering to give them a package of products including setting up an FSC.'' He found the Government "receptive'' to his ideas: "I got the feeling they'd really like to work with the private sector to find some grounds for re-energising the FSC business here.'' There had been moves in the right direction to make Bermuda more competitive in the market in recent years, notably in 1996 under the previous government.

"But the improvements didn't have much effect because the marketing didn't follow through getting the message across that things had changed, so the intermediaries weren't aware of the difference. That's vital to get it known out there so sales and marketing channels drive business to you. The key thing now is to get the word out.'' He said although FSC business was traditionally high volume and low margin, it could open up lucrative new opportunities for a jurisdiction because the companies involved often went on to do other offshore business.

After getting their toe wet with the FSC they may opt to set up a captive or get into offshore mutual funds via Bermuda.

"You've got to look at it beyond just the FSC business,'' he said. "Barbados is looking at it not just in isolation, they have over 2,000 FSCs there now.

The Government gets around $1,000 a FSC plus management companies get a few thousand.'' Meeting of minds: Bank of Bermuda director of corporate relationships Clem Talbot and US tax expert Robert Ross.

BUSINESS BUC