Lessons of the 1999 Abolition of Intra-EU Duty Free Sales for the New EU Member States

Abstract: The abolition of intra-EU duty free was critically discussed and accompanied by a vigorous and well-financed lobbying campaign by the duty free industry. The opponents of this resolution argued that such a tax-free sales sector created jobs and hardly reduced the value added and excise tax revenue of individual countries. In their opinion, the duty free trade not only contributed to the reduction of the travel fare but also could be characterised as a supplement to the normal retail trade for some products. The challenges for some specific industries led by the abolition of duty free shopping appear to be considerable in the short-term. However, theoretical and empirical examinations made in this study suggest: (a) intra-EU duty free shopping disturbs the allocation neutrality guaranteed in the single market, (b) macroeconomic significance of duty free shopping is rather negligible, and (c) some background studies made for the lobbyists exaggerate the negative impacts of eliminating intra-EU duty free shopping. These three important arguments, which can also be applied to the new EU Member States, justify the abolition of intra-EU duty free shopping.