The Bermuda Government made a strategic mistake by committing itself in a controversial letter of undertaking to eliminate what the OECD and the G7 nations label as "harmful tax practices'', according to a senior member of a top US think tank.

Daniel Mitchell, a senior fellow at the Washington-based Heritage Foundation, said Bermuda and the five other jurisdictions who gave similar letters of commitment should have instead rebuffed what he labelled a "cartel'' of tax hungry nations.

"Those letters were like the confessions made during the Soviet show trials in the 1930s,'' Mr. Mitchell said in a telephone interview. "It's like choosing to become a house slave rather than a field slave in the hope that you get better treatment. In the end you're still a slave.'' The Organisation for Economic Cooperation and Development was in effect attempting to set up a cartel to make smaller nations become their tax collectors, he said. Such moves were an attack on the sovereignty of offshore jurisdictions.

"Surrendering early in the hopes of getting treated better is guaranteeing you're going to lose,'' he said. "I don't think you're going to win through negotiating. The best strategy is to fight back by publicising your views against what is essentially a rebirth of colonialism and imperialism.'' The conservative Heritage Foundation is lobbying through its research and articles to rally opposition to the OECD and European Union moves to implement punitive measures against tax havens. Tax competition from offshore jurisdictions helps keep the governments of industrialised nations from increasing taxes to support "unsustainable welfare states'', Mr. Mitchell said.

''I have started a coalition in the US to derail the OECD's pernicious efforts,'' he said.

In the Wall Street Journal's European edition of June 29, Mr. Mitchell called the OECD an "OPEC for tax-hungry politicians'' and said the attack on havens was an assault on the benefits of globalisation.

"In a startling move that tramples sovereignty and makes a mockery of international law, the OECD is trying to force low-tax regimes to collect taxes for confiscatory regimes. In effect, low-tax nations will be threatened with sanctions -- ranging from ostracism to financial protectionism -- if they object to vassal status,'' he wrote.

"Unfortunately, it appears that the pressure tactics may be successful.

Bermuda, Cyprus, Malta, Mauritius, San Marino, and the Cayman Islands just announced that they would cooperate with the OECD. At the very least, this means an end to financial privacy in those regimes.'' Tax competition is good for globalisation, he said, noting the OECD's Business and Industry Advisory Committee recognises this, by writing that, "Tax competition tends to keep tax burdens lower, which create pressure for less wasteful, and, therefore, more efficient use of public funds''.

He believes ultimately the measures against tax havens will fail and those that resist will benefit from new business.

"Many of the so-called tax havens are unlikely to knuckle under to the OECD's pressure,'' he stated.

OECD `surrender' "Moreover, even if most of them do capitulate, that will increase business and profitability for those who refuse -- making them even less likely to join the cartel.

"Indeed, the rewards to low-tax regimes will be so large that other countries may decide to adopt similar policies to jump-start their economies. In short, trying to enforce a high-tax world will be like herding cats: Difficult in theory, impossible in practice.'' In May, Bermuda, the Cayman Islands, Cyprus, Malta, Mauritius, and San Marino made public commitments to eliminate the harmful effects of tax competition.

"The Government of Bermuda commits in particular to a programme of effective exchange of information in tax matters, transparency, the elimination of any aspects of the regimes for financial and other services that attract business with no substantial domestic activities,'' Finance Minister Eugene Cox stated in Bermuda's letter to the OECD.

In return for the letters the OECD did not name the six in its June list of 35 tax havens that could face sanctions if they didn't fall into line within a year.

Mr. Mitchell was formerly an advisor to the US Senate Finance Committee and is a regular contributor to the Wall Street Journal and Investor's Business Daily.