I would correct Senator Costello on one point. There was no Minister for Finance in November 1991 at the time of the ECOFIN meeting. It was an interregnum period and Ireland was represented by a permanent representative, which is usual in the absence of a Minister.
I would like to remind the House that the Programme for Government set out our commitment to resist the EU plans to abolish duty free shopping after June 1999 and we remain fully committed to that aim. Like most Senators and Deputies, I have received a number of representations from people who are likely to be affected and I am also supportive of the extensive campaign being mounted by the duty free industry to reverse this decision.
Unfortunately, the efforts by Irish Governments in this regard have not yet been echoed in all EU states. Ireland has made all the running on this issue, apart from one early intervention by Finland at Council level. No other member state has brought the matter on to the Council agenda. Finland now seems to have lost interest in discussing this matter at EU Council level. Only the Irish have pushed this topic at EU level and we have pushed it hard, although it will affect all 15 member states.
Ireland was the first into the fray on the duty free issue. We were also probably the first to seek to assess the direct impact of ending duty free, by a study undertaken by independent consultants which we have since published. The danger is that this subject is being seen in Europe as a peculiarly Irish problem and is presented as one which only the Irish wish to see discussed. Some other states are still assessing in detail the likely implications for them of the ending of duty free. The impact of ending duty free in all member states is not identical. States bordering the Baltic Sea and Germany are likely to be disproportionately affected if the volume of ferry traffic on those routes is reduced as a result of increasing fare prices.
A number of countries have taken the view that the decision has already been taken; it has been enacted into law; the issue is past and no purpose would be served by re-examining it or undertaking a study. They further argue that to conduct such a study would only raise the expectations of the industry that a further postponement of the day when it ends might be considered, at a time when the duty free industry and the carriers should be devoting their efforts to minimising the consequences of a long announced decision. They do not want any further study or any reconsideration of the decision.
The efforts by the Taoiseach at the European Summit and the Ministers for Finance and Public Enterprise are well known. Minister of State, Deputy Flood, also raised the issue at the EU Tourism Council of Ministers meeting in Brussels, given the concerns about the possible impact of the proposed measure on the development of the tourism industry generally.
In recent times we have had a little more success in getting other states to ask questions. At ECOFIN in May, France and Germany were supportive of a study, but a large number of member states still oppose it, as does the Commission. The position has now improved notably with France and Germany coming on side, but further support from workers in those countries still opposed is needed if any change is to happen. Two years ago only Ireland supported the call to save duty free.
I assure the Seanad that the Government is using every opportunity to raise this issue at political level in the appropriate EU fora and to suggest the need for reconsideration by the member states and the European Commission of the implications of the abolition of intra-EU duty free. There is something of an inconsistency in holding summits on Europe's appalling unemployment problem and then condemning the duty free trade. We do not want to add to the EU jobless statistics. The Minister for Finance is maintaining close contact with the interest groups, including trade unions, who are particularly interested in the topic and he met with them as recently as last Friday to consider future options that may be available.
It may be useful to give some background to the decision already taken to end intra-EU tax free and duty free shopping in 1999. Although it may seem like a facility that has always been widely available to Irish travellers within the EU, duty free and tax free sales were not available to travellers between Britain and Ireland until 1978 — the facility was confined to continental and third country destinations before that date. The extension of the concession to Irish Sea routes, both air and sea services and the duty free shops at airports serving passengers travelling to those UK destinations, was undoubtedly made in response to the difficulties faced by the tourism and travel sectors at that time. The decision undoubtedly arose from consideration of the frightful situation in Northern Ireland which had knock-on effects on our tourist business. In that matter things have substantially improved and recent developments give grounds for optimism that apparently impossible problems can be solved.
According to the EU Commission there is no good reason why one should be able to buy duty free goods when travelling by plane from Paris to Rome or Hamburg to Marseilles. One cannot buy duty free goods if one takes a train or drives between the same two places. What is so special about air or sea travel that it requires special tax concessions?
The Commission has consistently argued that duty free sales are not appropriate for a single market without internal frontiers and has set its face on getting rid of this option for air and sea travellers. It asks why such facilities should be available for persons using air travel but not for those who cross frontiers by car or take a train to another country within the EU?
This inter-modal fiscal distortion problem, as the Commission would describe it, is of particular relevance on the Continent with the development of high-speed rail links in competition with air services on journeys such as Amsterdam to Paris. Journey times have fallen dramatically and competition is strong between rail and air services.
I mention this because it would be unfair to the Commission to give the impression that its negative attitude to duty free is based on purely dogmatic views relating to duty free shopping or that its prime objective is to make people more miserable, as some form of perverse commemoration of the single market.
As part of the package of single market measures adopted unanimously in 1991 and 1992, the 12 EU member states decided to allow the continuation of duty free and tax free sales for intra-Community travellers only until 30 June 1999. This was agreed as part of a comprehensive series of Single Market tax measures, including substantial changes to the entitlements of travellers to bring in tax paid goods more freely. From 1 January 1993, travellers from EU countries benefited from enhanced entitlements to import items tax paid from other EU states and easier border controls, including the elimination of routine customs checks on incoming travellers.
The duty free operators were made aware of the proposal to end duty free in 1992 and for many years before that they were active in lobbying for the extension of time. The suggestion, sometimes made, that an indefinite retention of duty free could have been negotiated as part of an agreed solution allowing the Single Market to go ahead at that time, is too fantastic to be credible.
The strategy of seeking extra time was fully supported by Ireland, but was only reluctantly accepted by the EU Commission and some member states who wanted an immediate end to EU duty free. The extension to the end of June 1999, set out in Directives 91/680/EEC and 92/12/EEC, was agreed, not because the EU Commission was ambivalent about the decision to end duty free and tax free sales or was willing to accept permanent retention, but to allow the duty free operators, including those Irish operators who are very active in this sector, time to diversify their activities. This agreement to defer was generally welcomed in Ireland, as it had been originally planned that duty and tax free sales would end in January 1993 for EU travellers.
It is only intra-EU travel which will be affected by this decision. Duty free facilities will still be available after 1999 for travel to destinations outside the EU. This is a point of particular importance, not only to Shannon Airport, which has long served the needs of transatlantic travellers, but also to Dublin Airport, which has a reasonable amount of business with non-EU destinations, including the USA. In this regard I welcome the strong growth of traffic on north Atlantic routes this year. A new and welcome operator is Continental Airlines, which now provides service to Newark from Dublin and Shannon. Aer Lingus is also offering more capacity on the North Atlantic services this year than ever before. This should help sustain the duty free operations at Shannon and at Dublin.
The duty free industry has progressed considerably from its effective beginnings in a small shop at Shannon Airport in 1947. It is business which is now widespread, which is influential in promoting brands to travellers and which is of great importance to certain carriers and airport operators. From that shop at Shannon, a large industry has grown. In 1996 over 700,000 bottles of liquor were sold in the duty free shop at Heathrow Terminal Two alone, together with 83 million cigarettes. Some asked what that was doing for people's health. However, these are the statistics. According to some indicators, the worldwide total of duty free sales through all channels is estimated to exceed $20 billion. Of this, the volume of activity is estimated to have reached a level of almost six billion ECU in Europe in 1996 alone and in Ireland is now estimated to be well in excess of £100 million. At this kind of level, it is easy to appreciate the significant contribution which the profit from duty free sales makes towards the overall viability of the travel industry.
The income from duty free sales has long been recognised as playing a key role in the commercial plans of some transport operators. Operators have been using the profits from duty free sales to cross-subsidise other activities. For example, the cost of airport landing charges is lower as a result of profits from duty free sales in airport duty free shops and basic ticket prices paid by travellers are consequently lower. The study conducted for the Department of Finance by KPMG, which was published some months ago, made this point clear. The extent to which fares will have to increase after 1999 can be argued but everyone accepts the fact that operators are able to offer lower ticket prices as a result of the profit that they make from duty free sales.
Additionally, the profits from duty free have been used to help finance capital investment projects at Irish airports. Aer Rianta recently opened fine new terminal facilities at Dublin which will help reduce congestion at the departure gates during busy periods. Last year a record number of over ten million passengers used Dublin Airport alone. Airports are major job creators and are seen as powerful regional economic generators which help to create prosperity and employment in the regions. It is ironic that it is these regional airports which will be hard hit by the negative effects following on the abolition of intra-EU duty and tax free sales.
The cross channel ferry industry has been able to use such profits to help its investment program. New ships are expensive and the cross-channel trade is still seasonal. Not only does the profit help the investment programme for some marginal routes and some of our regional airports which have a hard time getting by, but the availability of duty free sales is a key element in their survival. I know this is the case with Knock Airport where duty free sales represent about 50 per cent of profits.
A key argument for retention is that it helps to keep the cost of travel down, and of particular significance for an island nation like ourselves is that it keeps access costs down generally. The number of people who choose to visit Ireland has been steadily increasing over the years and the numbers are expected to continue increasing. All this activity underpins employment opportunities, not only in the duty free stores themselves but also in the supply and distribution chain. By keeping the cost of access down, the employment in the tourist industry generally is maintained.
It is partly the scale and volume of the industry now that creates the problem we face; yet it gives me grounds for hope for a change of heart and of opinion among those opposed to the retention of intra-EU duty free and tax free shopping after June 1999. This is a decision affecting many people and places, from Finland to Greece. It is not just an Irish problem and I wish more people in Europe would recognise that it is an issue on which they must make their feelings known. However interesting an additional debate in the House may be to us all, I would prefer to see first debates on the topic in the other parliaments throughout Europe.
As one travels about Europe one cannot but notice the "keep duty free" logos at airports and on ferries. To publicise the issue, Britannia Airways, the UK based charter carrier, has large produty free slogans on some of its aircraft. As it has business in Germany, the text is in German as well as English. It all helps to put across the message. This campaign to keep duty free is being undertaken across the EU but there is no need to convince the Irish. Any decision to change this decision must be unanimous. The problem is not to convince the Irish people or Government — we are already on side — but to convince the EU Commission and other member states.
We are now within the final year. The renewed debate about duty free in Ireland is of a long duration. Previous Ministers for Finance raised the matter at the ECOFIN Council as long ago as 1996 during the Irish Presidency. It is only recently that the issue has received much attention in other countries. As the seven and a half year transitional period up to 30 June 1999, which was agreed to allow duty free shop operators and suppliers to explore alternative ways of carrying on business, began to tick away, people across Europe began to sit up and take notice. I and my colleagues will continue to keep the issue of duty free on the agenda.