Dáil Éireann díospóireacht -
Thursday, 11 Feb 1999

Vol. 500 No. 3

Adjournment Debate. - Duty Free Sales.

Proinsias De Rossa

I thank the Leas-Cheann Comhairle for the opportunity to raise this matter on the Adjournment.

The move to abolish duty free within the European Union is a reflection of the sort of rigid and inflexible decision-making processes that make many people throughout Europe cynical about the European project. Someone somewhere in the European bureaucracy decided that the concept of duty free is incompatible with the principle of the single market and, therefore, it must go, irrespective of the implications for jobs, the impact on the cost of air and sea travel and the consequences for the tourism industry.

As an island on the periphery of Europe with a high level of travel between here and other European countries and a tourism industry that is crucial to our economy, the proposal to abolish duty free was clearly a matter of vital interest. The Taoiseach is justifiably regarded as a shrewd operator with his finger on the political pulse. However, his decision as a member of the Council of Finance Ministers in 1991 to agree to the abolition of duty free must rank as one of the greatest political errors of his career. Make no mistake, the damage was done in 1991 when Deputy Bertie Ahern went in with his hands up and surrendered without a struggle. Since then we have been fighting an uphill battle to recover ground.

I accept that in the past year the Government has at last begun to realise the potential consequences of the 1991 decision for Ireland and, along with the Governments of a number of other countries, it began to seek support to have that disastrous decision reversed. However, it now appears that a report requested by European leaders at their summit last December from the European Commission will reject pleas for any reprieve for duty free facilities. The Government must not allow this to happen. This is a matter of significant interest to the people of Europe and the final decision should be taken by their democratically elected Governments, not by the Commission.

It is difficult to understand why any Government or international body, such as the European Union, would deliberately put people out of work. Sometimes Governments have to make difficult choices that can lead to job losses but it is shocking that any institution could to take a decision, purely for dogmatic reasons, to jeopardise what some sources in industry claim could be as many as 11,000 jobs here and 140,000 in the wider EU. Even the Commission report, which wildly underestimates the level of job losses, accepts that there will be 20,000 job losses throughout the European Union, 1,200 of them in Ireland.

Duty free has been an important element in air and sea travel for almost 50 years. It has stimulated trade, created jobs and helped to keep travel costs down. As night follows day, its abolition will reduce trade, jeopardise jobs and increase travel costs.

Aer Rianta is one of Ireland's most successful and go ahead companies. Its expertise is in demand throughout the world and it operates airport shops in the most unlikely places. However, its core business is running Irish airports. Duty free sales account for approximately 40 per cent of Aer Rianta profits. If that revenue goes it will have to be made up in some other way.

The same is likely to happen in ferry travel, an area where much of the travel is for leisure purposes, often day trips. Ferry companies estimate that every 10 per cent increase in fares leads to a decrease of approximately 10 per cent in the numbers travelling.

The knock-on effects in the tourism industry are likely to be dramatic. The Irish Duty Free Association has estimated that the abolition of duty free sales could lead to an increase of 30 per cent in travel costs and a consequent loss of 760,000 visitors to Ireland each year. Some £50 million worth of goods were sold by Aer Rianta duty free shops in Ireland and the total Irish duty free sales market is double that. A huge proportion of this consists of Irish made products. For example, 20 per cent of Irish Distillers whiskey sales are made through duty free shops.

The free movement of people is one of the cornerstones on which the EU is supposed to be built. Is it not a great irony that the EU is now proposing to do away with something that makes travel cheaper and more accessible to the majority of people? The Government must challenge the Commission on this issue. The Taoiseach should immediately lobby for support to have the Commission report rejected and should use the opportunity presented by the Berlin summit to lobby each Head of State.

Minister of State at the Department of Finance (Mr. Cullen)

The Taoiseach played a primary role in gaining an extension of duty free sales to 1999. It was disingenuous of the Deputy to suggest otherwise.

This House continues to show a great interest in the question of duty free and tax free sales to EU travellers, after June 1999, with this Adjournment debate. On the basis of decisions already taken, duty free sales for EU travellers will end at end June 1999 unless another agreement is reached. We believe that is wrong and unnecessary.

The continuing debates both here and in the Seanad, where the issue has also been raised on several occasions, testify to the continuing and unique efforts of the Irish, especially the Government, to have the decision on duty free sales reversed and to support the efforts of those employed in the affected sectors to get this decision put on hold or dropped altogether.

Ireland has raised this issue at various levels over the years. We were the first to raise it, and many derided us for our persistence when at first we got no support. We continually called for an EU wide study, which the Commission would not undertake then and we have also called for a basic rethink of the decision and for an extension of time.

Ireland has raised this issue so often at all levels and at various EU Councils, including at the European summits over the years, that we have been recognised as the leaders of the campaign. Not only this Government but its predecessor in office has raised this matter in EU fora.

I welcome the bipartisan interest in and approach to this topic that has always been shown in the House. The Irish transport workers, airport and ferry staff, who of necessity have great interest in this subject, have helped greatly in altering the minds of people in Europe on this topic. They have lobbied vigorously and used their links with workers in related businesses in the other EU states to mobilise cross-frontier opposition. It has been a special form of partnership between Government, trade and employee interests.

We have raised this question at all levels with the relevant Commission officials, including the President of the Commission, Mr. Santer, with individual Commissioners and with officials of the EU institutions. We have not neglected the European Parliament either.

The 1991-92 decision to end duty free sales was confirmed by the Commission at ECOFIN on 19 May 1998 and supported by the majority. The Commission was then strongly supported by a number of member states, who did not wish to see the original decision revisited. At the 19 May meeting, however, a number of countries gave support for the first time to the Irish call for a study. More recently we seem to have seen large scale conversions to our view.

With the change of Government in Germany, the Minister for Finance immediately wrote to his German colleague on this matter, as he did to several other EU Finance Ministers. The Taoiseach contacted the leaders of the other member states also. The Minister has received a letter from the German Minister for Finance, Mr. Lafontaine, today which confirmed German concern about the employment aspects of the decision to end duty free sales. I am sure it will influence his handling of the issue at ECOFIN.

France has recently redoubled efforts to get a change of mind. Last summer Mr. Capet reported to the French Prime Minister. He represents the Pas de Calais region and he suggested that the decision be revisited. That report brought France on to our side. The French have also reopened debate at the ECOFIN Council. I was delighted to see them row in fully behind our efforts by launching their own efforts to have the decision reversed.

Last November the EU Commission issued a document to explain the scope of the existing Community measures capable of offsetting, regional, local or social difficulties which may arise from the abolition of duty free sales as from 1 July 1999, in accordance with the unanimous decision adopted by the Council of Ministers in 1991 and in the context of Community assistance. It was widely felt that this document was not an adequate response to the problem, and that an extension of time was essential. At the Vienna Summit the EU Heads of State and Government considered this issue in depth. I was there with the Taoiseach and have the highest regard for the direct way in which he dealt with this issue. This led to a mandate to ECOFIN Ministers and to the EU Commission.

With regard to the decision of 1991 on the tax-free sales for intra-Community travellers, the European Council asked the Commission and the ECOFIN Council to examine by March 1999 the problems which could arise with regard to employment and to address on the basis of proposals from the Commission possible means of tackling these problems, including the possibility of at least a limited extension of the transitional arrangements. On the basis of a report from the Commission, expected shortly, ECOFIN will again discuss this topic at the March ECOFIN meeting.

I hope the Commission will not merely restate earlier responses when it considers this matter formally in the near future. It should certainly note that the mood across Europe is moving the Irish way, for the retention of duty free and tax free shopping.