Last call for duty-free sales

Date: 25/07/1996

By Fiona McHugh

REMEMBER those last-minute dashes to the duty-free shop in the airport? The nearly-missed planes and the hastily-bought presents?

Such stresses and strains will soon become a thing of the past for passengers travelling within the European Union because, from 1 July 1999, duty-free shops will no longer exist in EU departure terminals.

As Internal Market Commissioner Mario Monti continues his all-out drive to complete the single market before the end of the century, he insists that they are incompatible with a border-free Europe.

In a 111-page report currently making its way through the Commission by written procedure and due to be published in the coming days, the case for abolition will be forcefully put.

But there are plenty of people - the 100,000 employees likely to find themselves on the dole once the deadline expires, small airports faced with the threat of closure as a result of the change-over and airlines desperately in need of the cash generated by tax-free sales - for whom the idea of ending the duty-free bonanza is an anathema.

Tax-free shopping generated a staggering 4.85 billion ecu in revenue across Europe last year alone.

Supporters of an extension of the deadline for ending this perk argue that without this money, airfares will shoot up and taxpayers will have to foot expensive airport infrastructure bills.

“Duty free is a success story for Europe and not something to be ashamed of,” says Derek Keogh, chief executive of Aer Rianta, an organisation which represents Irish airports.

“It provides jobs for thousands, it gives pleasure to millions and it generates economic activity without which there would be a significant increase in public spending on airport development projects,” he adds.

Keogh's argument is echoed by his European counterparts.

“Plainly our duty- and tax-free revenue is vital if we are to provide the necessary airport facilities for the liberalised air transport market at the lowest possible costs and without making substantial demands on taxpayers,” says Philippe Hamon, director-general of the European organisation Airports Council International (ACI).

Both Hamon and Keogh claim that the loss of duty-free revenue is also likely to increase the cost of moving goods around the Union and so have a negative impact on the competitiveness of European industry.

But perhaps the strongest argument in favour of abandoning plans to scrap tax-free privileges is the fact that travellers enjoy browsing around duty-free shops to pass the time while waiting for their flights.

With the deadline looming, MEPs are beginning to feel the heat of their constituents' worries - and they have begun to react. A host of questions recently put to the Commission on the subject by members of the European Parliament has thrown the spotlight back on to this long-dormant issue.

Irish Fianna Fáil deputy Brian Crowley is spearheading a campaign to have the Council of Ministers' 1992 decision on duty-free shops reversed.

“We should review this decision. We need to look at it in the cold light of day, examining in particular the effect it will have on employment,” he insists.

Crowley is not alone. A growing number of MEPs would like to see the question raised once again.

But their appeals are unlikely to get a sympathetic hearing inside the Commission and, without a proposal from that institution, there can be no extension of the deadline.

With the harmonisation of Value-Added Tax back on track, now seems a good time to phase out duty-free sales.

They were due to be abolished before the EU's single market came into force in 1993 and internal borders were - in theory at least - scrapped. But member states governments decided to extend them.

This time around, they are unlikely to get a chance to go weak at the knees again as the clock ticks away towards the deadline.

Monti has made it clear that he is determined to stand his ground. “Tax-free sales are to be abolished from 30 June 1999. We do not intend to change this,” he recently told journalists, emphatically ruling out any change of heart.

That steeliness is likely to be welcomed by supermarkets whose customers have to pay tax on luxury goods and argue that the existence of duty-free shopping creates an unlevel playing field.

“Why should our customers have to pay extra money? Of course it is bad for our business,” says a representative from a large Belgian chain of supermarkets.

This charge is rejected by supporters of the existing regime, who insist that the two cater for totally different consumer needs. “If you get off a plane without duty free then you do not run down to your local off-licence to replace it,” says Chris Scott Wilson of the alcoholic beverage company, Guinness.

But the European consumer organisation BEUC, which has long campaigned for a speedy abolition of duty-free sales, will also welcome Monti's determination.

BEUC claims that people are often duped into believing that they are getting a good deal when, in fact, they are not.

A study carried out in 1994 revealed that prices in duty-free shops were often higher than they were in ordinary high street stores.

The report due to be published by the Commission before the summer break will strengthen Monti's hand in arguing for a complete abolition of the duty-free system.

Among other things, it will conclude that vendor control systems designed to ensure that passengers in a customs-free Europe do not exceed their legal duty-free limits are not working.

Current tax-free limits for a passenger travelling within the 15-nation bloc are 200 cigarettes, two litres of still wine and a litre of any other alcoholic drink. Passengers may not spend more than 90 ecu on duty-free goods on an intra-EU flight and 175 ecu on journeys outside the bloc.

The report will warn that the vendor control system currently in place “does not safeguard against multiple purchases by the same passenger during the same journey”.

Armed with evidence that airports are not enforcing the law properly, the Internal Market Commissioner can legitimately insist that he has no alternative but to end the perk.

In the meantime, Monti insists, there is no justification for raising the limits on duty-free purchases. He is also critical of both member state governments and the duty-free industry for failing to prepare for the change-over.

Still, the fact that Monti has had to launch a pre-emptive strike suggests he is aware of the likely fall-out from the implementation of the 1992 decision.

And despite his apparent determination to stand firm, the Commissioner is likely to come under intense pressure from some quarters to change his mind.

After all, the decision to abolish duty-free shopping was taken in 1992 when completion of the single market was top of the EU's agenda. Since then, the ground has shifted somewhat, with political priorities giving way to economic ones.

Commission President Jacques Santer has put the fight against unemployment at the top of his 'to do' list and the Commission as a whole has emphasised the need to bridge the gap between citizens and the EU's institutions in the wake of the Maastricht Treaty public relations disaster.

Sealing the fate of the duty-free regime would not go down well with the public. Any decision which is going to result in the loss of up to 100,000 jobs and bring to an end a perk which most citizens enjoy is bound to be extremely unpopular.

And unpopularity is something the Commission is trying desperately to avoid at a time when Euroscepticism is on the rise across Europe.