asked the Minister for Finance if he will make a statement regarding the finding of the European Court that the 48-hour rule on duty free purchase is in breach of Ireland's European obligations; and the steps he proposes to take to protect the economy from the increased cross-Border trade which will result.
Private Notice Questions. - Duty Free Purchase Rule Judgment.
asked the Minister for Finance the Government's response to the ruling given by the EC Court of Justice this morning that the Government's 48-hour restriction on duty free allowances contravenes Community law; and if he will make a statement on the matter.
I propose to take these two questions together.
The position is that an advance copy of the court judgment was received in Dublin this morning. The formal judgment has not yet been received.
In its judgment the court has found that, through the operation of the 48-hour rule without a specific derogation from Community law, Ireland has failed to fulfil its obligations under the treaty.
The Government are naturally disappointed at this ruling. In the submissions made to the court, the Government had made a forceful case about the scale of abuse of the travellers' allowances and the major distortion of trade that had been occurring prior to the operation of the 48-hour rule. The scale of the problem had been recognised by the Advocate General in his opinion of 21 March, which was discussed in an Adjournment Debate in this House the following day.
While the Government accept the court judgment, I have made clear that the present 48-hour restrictions are to remain in operation pending a detailed consideration of the judgment and its full implications, as well as the outcome of current consultations at Community level.
The aim of the dicussions already in train with the EC Commission and other member states is to obtain a mutual agreement for modified arrangements to enable Ireland to prevent the abuses and distortions of trade to which I have referred. It is hoped to reach an understanding with the EC as quickly as possible.
I can assure Deputies that it is the Government's objective in the discussions that the new arrangements should safeguard the important financial and economic interests of Irish businesses and the Exchequer.
The ultimate solution lies, of course, in the approximation of indirect tax rates in the Community. Progress in this area has been slow because of the important interests at stake for all the member states. The Irish Government have made clear, in the VAT and excise reductions which I introduced in the 1990 Budget, that Ireland is anxious to make progress in the approximation of EC indirect taxes. However, until the necessary degree of approximation has been achieved, the Irish authorities must continue to be concerned about the trade distortions that have arisen.
If I understand him correctly, the Minister is telling the House, notwithstanding the finding of the European Court against Ireland, that he intends to continue enforcing what has been found to be an illegal and unauthorised ruling by the European Court. If so, would he explain to the House why, having been found guilty, he intends to continue the offence? Secondly, would the Minister outline what further proposals or discussions he has had with the European Commission with a view to achieving some compromise on this matter, and indicate whether he is having discussions on the basis of some different allowance period, other than 48 hours — perhaps something less — and what stage those discussions have reached?
At the meeting of ECOFIN yesterday, in Luxembourg under Item 6 of the agenda, fiscal harmonisation, there was a discussion on travellers' allowances. I would like the Deputy and the House to be aware that Denmark has a 48-hour rule, albeit in a more restricted fashion than we would be looking for, and has a derogation from it.
During that discussion Deputy Geoghegan-Quinn, on behalf of Ireland, tabled her suggestions about how the situation might be met. The Dutch delegation and the Dutch Minister tabled a Dutch compromise taking into account the Danish situation and said in their deliberations they would be in favour of taking the Irish case on board as well. Therefore, in the context of it arising yesterday, Deputy Geoghegan-Quinn, Minister of State at the Department of the Taoiseach, tabled proposals that could be considered in the light of the ongoing discussions that will take place with the Commission and with the member states.
In relation to the first part of the question, yes, technically the court have found, but the Deputy being a lawyer will appreciate we need reasonable time to consider the implications of the court judgment itself, in view of the fact that the Advocate General when giving his opinion stated clearly that there is a very serious problem in relation to the distortion of trade in Ireland — it is on record — and while distortions of trade have occurred in this instance, it is also technically in breach of Community law in that under sections 85 and 86 of the Treaty free and equal competition is supposed to apply. Two wrongs do not make a right. It is a complicated area and reasonable time would be expected to be allowed in any such circumstances where the issues are complex, as they are in this case.
Deputy Rabbitte.
I am looking for clarification——
Sorry, I have called Deputy Rabbitte.
It is——
Deputy Rabbitte will be heard now.
Was it not reasonable to expect a more definite response from the Government on this matter, having regard to the expectation on the part of everybody concerned that this decision was likely to be the decision of the European Court? Having regard to the minimal measures taken in the Finance Bill recently enacted concerning tax harmonisation progress, when do the Government expect to be in a position to make a more comprehensive statement in this regard? Finally, does the Minister acknowledge the irony of the situation where the Government who campaigned in favour of the removal of all tariff barriers and of the SEA have devoted most of their energies since to working out what derogations we might get and that the better deal expected by consumers, whether in respect of motor cars——
Let us have brevity, Deputy Rabbitte.
——and the specific matter——
Let us not stray from the subject of the question.
——of expectations of consumers being defeated because——
Please, Deputy Rabbitte, relevance and brevity.
I am asking in respect of the subject matter of this question whether the better deal expected by consumers has been defeated——
I think the Deputy has made his point.
——because of the devastation caused for traders along the Border and the impact on jobs here in the Republic of Ireland.
First, let me set the background against which the 48-hour rule was introduced in the first place so that there is full appreciation of what is involved. In 1986 alone about 3.6 million trips were made for the purpose of making purchases in Northern Ireland, with serious consequences for the Irish economy. Some IR£300 million was spent on those purchases, which represents 1.9 per cent of GNP, 2.8 per cent of total personal expenditure on goods and services, 12.9 per cent of imports of consumption goods ready for use, and 91.2 per cent of the deficit on current account of the balance of international payments. The revenue lost to the Exchequer in 1986 is estimated at £40 million. Are the Deputies seriously suggesting that that could be allowed to continue, that there is not a prima facie case straight of a clear distortion of trade?
We have approached this in the most pragmatic way possible. Once this court case started the Commission found itself unable to have discussions or negotiations with us but after this morning's adjudication by the court it is now in a position to start negotiations. In that context this whole issue was discussed yesterday and will continue to be discussed and it is the way to resolve the matter finally.
In this year's budget, I tell Deputy Rabbitte and others, reducing VAT from 25 per cent to 23 per cent and other areas of Customs and Excise was a recognition and a clear statement of principle by the Government of our acceptance of a move towards tax harmonisation to be achieved as circumstances permit. Furthermore, it is possible to negotiate with the EC a derogation that can carry us on to the end of 1991, the date on which the Finance Ministers Council fixed last November for final resolution of the VAT situation. Derogations are allowed and are legal under sections 108 and 109 of the Treaty of Rome.
Has the Minister taken into account the fact that all court orders and judgments come into operation from the time they are pronounced and not after allowing any period of time for any party thereto to consider them? Has the Minister taken into account in view of the European judgment that now a person, if stopped, may well have a claim against the Minister and the State for damages and he may run himself and the State into substantial legal costs if he adopts that attitude for any length of time? Will he comment?
The rule is effectively gone.
I said in response that a reasonable time is expected for consideration of judgment in this case and the Deputy should be aware that there are many instances of judgments given in relation to member states that have not yet been complied with in Europe. We have accepted the court judgment and we will within a reasonable time consider its total implications. In the meantime we will continue to negotiate with the Commission and member states.
Have the Department done any calculations on how much that figure of £40 million will be diminished as a result of the new VAT and other Customs and Excise regimes implemented in the Finance Act? What will the current loss be to the Exchequer per annum?
Sin ceist eile.
I will call Deputy Shatter and Deputy Boylan if they will be very brief.
In the second last reply the Minister gave to Deputy Taylor was he indicating that we regard it as acceptable under EC laws that if a decision is made against a member state on some future occasion that is detrimental to the interests of this State, that other state should be given some considerable time to consider whether to comply with the European Court judgment? It is a very dangerous precedent if that is what the Minister is suggesting.
The Deputy was not even listening to what I was saying, and clearly that assumption is totally incorrect.
I was listening very carefully. That is a very dangerous precedent.
(Interruptions.)
Does the Minister not accept that the 48-hour rule was of no benefit to the immediate Border area but that the solution to the situation there would be the solution to the 48-hour rule, that is, facing up to the reality of harmonisation of taxation?
I am surprised to hear a Deputy from a Border constituency like Cavan-Monaghan suggesting that the 48-hour rule was of no benefit. Nobody would believe that statement for a start.
(Interruptions.)
Question have been asked. Let us listen to the reply.
I would like to hear——
Deputy Boylan, please desist.
Secondly, Deputies on the far side who shout so loudly about this were members of a Government who allowed that situation to develop that cost this country in 1986 almost 2 per cent of GNP.
(Interruptions.)
That disposes of questions for today.