The decisions to end EU duty free and tax free sales in 1999 have already been taken by the EU Council in the context of the "1993 Tax Package". Duty free sales to travellers going to destinations outside the EU are not affected and should continue.
The relevant EU Directives here have been adopted. The duty free measure was not adopted in isolation. Most notably Council Directive 92/12/EEC provides for the abolition of duty free sales for intra-EU travel after 30 June 1999. This and the other decisions relating to tax free selling, formed a part of an overall single market tax package. The EU Commission and some other member states agreed to the extension of duty free selling in 1992 until 1999 as representing a final concession. That view is maintained by the Commission – which initially sought immediate abolition in 1992 and now remains opposed to any extension – and by a small number of the member states of the EU, who are also opposed to any extension of time for duty free sales now.
As this House is aware, Ireland has actively and persistently raised this issue within the EU at various levels over the years. The decision to end duty free sales was confirmed by the Commission at the ECOFIN meeting on 19 May 1998 when I raised the topic and was, at that time, supported by many member states. Since that time, both Germany and France have indicated their concern at the proposed abolition and the mood in Council has moved towards a reconsideration of the issue.
At the Vienna Summit in December 1998, the EU Heads of State and Government considered this issue in depth, leading to a mandate to the ECOFIN Ministers and the EU Commission. The Commission was requested to produce a report for ECOFIN.
Last Wednesday, the Commission responded to that mandate. Following its examination, the Commission report considers that the abolition of duty free sales for intra-EU travel will not have a significant negative impact on employment overall, and says the extension of such sales would create uncertainty and disadvantage normal retailers and other means of transport.
The Commission states that the factors it took into account included the following. The growing demand for transport services, stimulated notably by the existence of the Single Market, is not likely to be affected by the abolition of duty free sales. Most travellers, it argues, will continue to shop during waiting time at the airports or spending time on ferries, even after the abolition of intra-EU duty free sales. This, it says, is confirmed by the experience at US airports where there is continuing expansion of tax-paid shopping malls.
The Commission also points out that the difference between some prices duty free and duty paid is often insignificant, particularly in the case of goods other than tobacco. The Commission has also referred to the gain to the national exchequers if duty free sales are abolished and has commented on the growth of employment in high-street retailers.
We are disappointed with the Commission report. The study which we commissioned from KPMG was produced and sent to the Commission. It pointed to the potential negative effects on employment particularly in the ferry sector. The Commission report is not a sufficient reply to the clear request of the Vienna Council for a short-term extension of the transition arrangements for ending duty-free sales. The Commission has not made any proposal in this regard.
Neither do I believe that use of the existing EU measures, such as the Structural Funds, where such could apply, as the Commission suggests is the best solution to use to limit the impact of this change in employment. While such measures have a role to play, their impact is necessarily limited and an extension of time is still the outcome that we will support at ECOFIN.
The next step is for the Commission's report to be considered by the Finance and Economic Ministers at the ECOFIN Council on March 15, when the Commission will present its report.
I doubt that it will be well received. It has already been criticised by a number of member states. I intend to continue to press the Commission on this matter.
In the event that we do not convert the Commission at that meeting it will most likely become a matter which the Heads of State and Government may wish to consider at the European Council in Berlin on 24-25 March.
I acknowledge the broad bipartisan support we have in the House to see this matter resolved on a satisfactory basis. The Government has set out its view that a deferral of the abolition of duty free sales is necessary.
My colleagues in Government and I, will continue to work to that end, both at Council or through bilateral contacts. In the end it will be necessary for the Council to convince the Commission that an extension is necessary here.