Bermuda beware -- American tax law changes could wipe out advantages to businesses based here, said outgoing US Consul General Larry Owen.

He said last year's attempt by Congress may have been defeated, but the issue could rear up again under the new Bush administration.

He said: "Last year there was a flurry of action in the US Congress to change the US tax laws that would have eliminated any advantage for insurance companies in Bermuda.

"That's a real threat to the Bermudian business base that comes from many of the international exempt companies -- that issue won't go away.

"The effort died but I think it will be a constant threat to the business base of Bermuda.

"Obviously there are companies in the US who feel at a competitive disadvantage because companies in Bermuda have a different tax status.

"Bermuda ought to expect competitor companies will try to have that eliminated.'' He said a rear guard lobby by threatened companies helped stave off the last year's move.

But Bermuda might not be so lucky next time. Asked whether the new Congress and president would affect the situation Mr. Owen said: "It's a new ball game every time.'' "It's something to be vigilant about.

"A very small change in the US tax law involving not much more than removing half a sentence could have a dramatic effect on this Island because the consequences could be so huge.

"Bermuda has to be vigilant at all times.'' And Mr. Owen also said he doubted whether the controversial stop list -- which bars Bermudians with drug convictions from travelling to the US -- would be changed. He also sounded critical of the current drug war being waged by the US.

He said: "People have some appeal rights and some protection to come off that stop list when a mistake has been made but I don't think it will be likely that the general policy is going to change.

"I support that policy. But it can be extended beyond the point where it is necessary.

"That is happening in some cases. But in general the notion to identify people who have been convicted of crimes and bar them from entering the US -- that's a correct policy.

"But for a first-time conviction for a small quantity of soft drugs, that's a ticklish issue.'' Outgoing US consul warns of renewed tax threats "I think at this point the US could well look over the attitude toward drugs and drug policy; that would obviously include the stop list.

"Frankly, politically neither the US or other countries are ready to take a hard look at this approach which has been taken.

"We have spend billions of dollars trying to inhibit the supply of drugs but we have created a lot of billionaires but not done much to inhibit the supply.

"At some point you hope the policy makers take a long hard look that.'' Mr. Owen declined to elaborate.

On the clean up of the former US baselands Mr. Owen was confident a deal will be struck.

Last year he said a cash deal was unlikely because other countries would want similar treatment.

He said: "I think it will be resolved but I am not sure when -- we are on track.

"It will lead to some kind of resolution that will be acceptable all the way around. I don't think it will be that long coming but you never know.'' Asked what had been achieved over his 18 month-tenure on the bases issue he said: "It really can't be discussed, the best progress on an issue like this has to be quiet because it's a delicate issue.

"From the US perspective, to reach a resolution is an objective but the overarching objective is not to set a precedent as regards to bases closing around the world.

"If it becomes highly public then the answer is going to be no. If it's managed more privately the chances are positive.'' But he denied he was talking about a secret deal.

He said: "We work better quietly. That's what's been going on. The Bermuda Government and the UK Government have been steadily making progress with us.'' He believes the emergence of the new Bush administration doesn't mean Bermuda was back to square one on the baseland issue.

"I would be surprised if that happened. It's possible but I doubt it.'' Mr. Owen would not be drawn on reports the current PLP Government had declined offers from former Premier John Swan to use his contacts with Secretary of State General Colin Powell to benefit the island.

He said: "Progress had been made by the Government during my tenure and it will continue to be made.''