UK pushes for duty free deal with Paris

Date: 22/04/1999

By Tim Jones

BRITISH Finance Minister Gordon Brown is seeking a bilateral deal with France to mitigate the effects of abolishing duty-free shopping within EU borders.

By concentrating on ironing out the grossest distortions on cut-price alcohol and cigarette sales, Brown has effectively admitted that the five-month-long battle fought by the British, French and German governments to reprieve intra-Union tax-free sales has finally been lost.

Brown raised the issue with France's Dominique Strauss-Kahn during an informal meeting of EU finance ministers last weekend and requested further talks. He wants to avoid sudden change to excise duties on goods sold on Channel ferries.

Industry sources say Brown hopes to persuade Paris to average out duties between UK and French ports, and put in place a mechanism to compensate either government for lost revenues.

In a formal notice published last week, the European Commission ruled that once duty-free shopping is abolished at the end of June, value added taxes will always be levied at the rate applying in the country from which the ferry or aircraft set off.

However, the rate of excise duty on cigarettes and alcohol will be that of the country where they were loaded, until the ferry or plane arrives at its destination, when that country's rate will apply - a recipe for administrative chaos in the eyes of ferry and airport companies.

Until July, travellers within the EU can buy tax-free products up to a limit of 200 cigarettes, a litre of spirits, two litres of table wine, 50 grams of perfume and 250 millilitres of toilet water. This is particularly popular among British travellers to France.

The Commission flatly rejected British, German and French pleas for the perk to be reprieved in February despite warnings from ferry, airline and airport companies of chaos, confusion and higher fares.

A late attempt by German Chancellor Gerhard Schröder to win a 30-month delay to the introduction of normal rates of excise duty also failed, with a group of countries led by Denmark, Finland and the Netherlands refusing to review the eight-year-old decision to end duty free.

In a report on the consequences of abolition, the Commission conceded there could be thousands of short-term job losses, but argued that long-term job and economic gains would outweigh these.

Acting Internal Market Commissioner Mario Monti has said he is prepared to consider aid to the hardest-hit areas However, he recently told finance ministers that he had "noted with interest" the decision by BAA, the company which operates most of the UK's major airports, to sign a 15-year contract with Eurotunnel to operate the latter's extensive retail facilities at its Folkestone and Calais-Coquelles terminals. "This has not helped their case for aid," said a Commission official. "It is not exactly an industry on its last legs."