On July 1 the right to buy goods free of taxes and excise duties is set to vanish on any trip inside the EU. No more cut-price gin or cigarettes to ease those end-of-vacation blues; no more flagons of cheap perfume for last-minute gifts. Stock up now, is the message from Eurotunnel, owners of the megastore beside the British entrance to the Channel Tunnel, before the Eurocrats crack down. The company has added 16 tills to cope with the expected pre-abolition rush and has installed an outsize countdown clock to remind shoppers that their bargain-hunting days are numbered.
But could the clock be stopped? Thanks to one of the biggest lobbying efforts in EU history, governments are wavering. Under pressure from big transport companies and millions of protesting consumers, Germany–backed by a clutch of powerful allies–unveiled plans at an informal EU summit last week to ease in abolition. According to the proposal, only value-added tax would be levied from this June, with full excise duties following two and a half years later. But even that modest idea puts Europe’s largest nations on a collision course with the purists of the European Commission. Brussels insists that those trolley loads of budget booze make nonsense of the notion of a single market. The very idea of duty free has no place in their new Europe of vanishing fiscal frontiers. Or does it? At the Brussels office of the International Duty Free Confederation, director John Hume is confident that next year’s holidaymakers will toast their vacations with tax-free liquor. “As the date for abolition gets closer,” he says, “governments are beginning to see what the real consequences will be.”
To hear the lobbyists tell it, those consequences will be disastrous. Europe’s duty-free industry is now worth £4 billion annually, having almost doubled in size since 1991. Abolition, they say, will mean up to 150,000 layoffs across the EU. Some air fares will rise by up to 20 percent as operators compensate for lost income. Ferry companies in the Baltic, who now earn half their revenue from duty-free sales, will have to close unprofitable routes in the North. “This is going to be a disaster for the whole region,” says Tuomas Nyland of Finland’s Silja Line. Besides, the lobbyists argue, there can be no single market for their principal products as long as individual EU countries still set varying domestic excise rates. Crucially, the Commission has yet to rule on how taxes will be charged in the future. Will Channel ferries have to change prices whenever they pass between British, French and international waters?
The 540-member confederation has spared no expense lobbying Brussels and whipping up popular support. That Brussels office costs £400,000 a year to run, and over the last two years the campaign’s literature has been tough to miss at ferry or airport terminals. British companies alone have distributed more than 14 million “consumer awareness” leaflets. Last summer the SAVE DUTY FREE message appeared on everything from beer mats to basketball caps.
The Commission, by contrast, has nothing but logic on its side. The duty-free perk began as a concession to long-distance seafarers. Its postwar rise owes more to loophole-spotting than economic sense. These days, says the Commission, it amounts to a £1.4 billion subsidy to the traveler paid out of the taxpayer’s pocket. Among those who gain most are those same tobacco and alcohol industries that governments are usually keen to punish. The Commission’s own studies suggest that the transport lobby has exaggerated likely losses. Officially, the duty-free lobby is only pushing for a reprieve of five years while the EU sorts out a replacement regime. But the vote on abolition was taken eight years ago. The businesses have already had plenty of warning.
Industry hopes of a last-minute stay of execution still seem overly optimistic. Under EU law, it would take a rare show of unanimity by member states to reverse the original resolution. Big decisions are looming on EU spending, and some politicians reckon it’s no time to be seen yielding to public pressure. In fact, savvy companies are already assuming defeat. Baltic ferries are planning to include more stopovers in non-EU Norway or Estonia, where duty free will survive. Eurotunnel is seeking more outside retailers to take over some floor space. Retail director Bruce McKendrick actually welcomes the change: “It will mean we see some economic sense return to the marketplace.” The Commission will drink to that.
