UK urges OECD study on corporate tax breaks

The Government will call this week for the industrialised countries to assess whether the competition to attract footloose multinational businesses through favourable taxation is harmful.

It will propose that the Organisation for Economic Co-operation and Development, the rich countries' think tank which holds its annual meeting in Paris this week, should launch a wide study of how tax systems in different countries affect international investment flows. The study, which would take at least 12 months to complete, could form the basis for a new agreement on international taxation which would prevent the tax system being used deliberately to lure investors.

Britain will also push for a new round of international trade liberalisation, issuing a call for global free trade by the year 2020.

Although other states are likely to agree to the tax study, the call for freer trade is expected to meet some resistance as existing negotiations on areas such as telecommunications and audio-visual trade have run into the sand.

The World Trade Organisation itself, the multi-lateral body which would have to lead a new negotiating round, will resist taking on such a challenge before it has resolved its own teething troubles and wrapped up issues left over from the Uruguay Round of negotiations.

The British move follows a similar call by Sir Leon Brittan, the EU's trade supremo. However, some also see it as an attempt to deflect demands by some countries, led by France and the US, to write minimum social standards into trade agreements. This row, which emerged at the Group of Seven jobs summit in Lille last month, will resurface at the OECD's elegant chateau headquarters in Paris this week.

Those in favour of so-called social clauses argue that they are an effective way to outlaw practices such as bonded and child labour which allow some developing countries to produce unfairly cheap goods. Britain, along with Japan and Germany, sees increasing prosperity in the Third World - which depends on trade - as the solution to unacceptable practices.

The French and Americans, however, want to put proposals on social clauses to the first annual meeting of the World Trade Organisation. This will be held in Singapore in December.