Communication from the Commission to the Council concerning the employment aspects of the decision to abolish tax- and duty-free sales for intra-community travellers
Date: 1999-02-17
Institutions: European Commission
Subjects: VAT, duty-free sale, employment policy, fiscal policy, intra-EU trade

C  66/6

EN

Official  Journal  of  the  European  Communities

9.3.1999

Communication  from  the  Commission  to  the  Council  concerning  the  employment  aspects  of  the
decision  to  abolish  tax(cid:220)  and  duty(cid:220)free  sales  for  intra(cid:220)Community  travellers

(1999/C  66/04)

INTRODUCTION

employment  are  expected  to  be  more  than  offset  by
long(cid:220)term  effects  on  job  creation.

for 

intra(cid:220)Community 

The  European  Council  in  Vienna  (11  and  12  December
1998),  "with  regard  to  the  decision  of  1991  on  tax(cid:220)free
"the
sales 
Commission  and  the  Council  (Ecofin)  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  a  limited  extension
of  the  transitional  arrangements)(cid:216)(˛)’.

travellers’ 

asked 

In  response  to  the  European  Council’s  request,  the
Communication  proposes  ways  to  tackle  the  problems
which  the  abolition  of  intra(cid:220)EU  duty(cid:220)free  sales(cid:216)(ˇ)  could
create  especially  as  regards  possible  job  losses.  It  does  so
in  the  context  of  the  EU  strategy  on  employment.  The
Commission  notes  that  a  consistent  policy  to  make
national  tax  systems  more  employment(cid:220)friendly  is  now  a
declared  objective  of  Member  States.  This  objective  was
recently  reaffirmed  by  the  Vienna  European  Council
itself.

The  duty(cid:220)free  regime  cannot  be  considered  in  isolation.
Its  existence  impacts  on  employment  not  only  in  that
sector,  but  across  the  economy  as  a  whole,  because  it
retailers  and  between
distorts  competition  between 
modes  of  transport.  Indeed,  duty(cid:220)free  can  be  seen  as  a
test  case  of  the  credibility  of  the  EU’s  determination  to
use  tax  coordination  to  fight  harmful  tax  competition
and  hidden  subsidies  which  put  pressure  on  labour  costs,
and  so  reduce  job  creation.

in  keeping  with 

the  Vienna
This  Communication, 
mandate,  looks  chiefly  at  ways  of  dealing  with  potential
the  abolition  of
employment  problems 
related 
duty(cid:220)free  sales, 
limited
extension.  On  the  basis  of  this  analysis,  the  Commission
considers  that  the  abolition  of  duty(cid:220)free  sales  will  not
have  a  significant  lasting  negative  impact  on  employment
overall.  On  the  contrary,  as  with  the  phasing  out  of  any
effects  on
distorting 

including  the  possibility  of  a 

short(cid:220)term  negative 

subsidy, 

to 

1.(cid:217)WHY  WERE  THE 
DECISIONS  TAKEN?

1991  AND 

1992  COUNCIL

The  creation  of  the  Single  Market  meant  the  elimination
of  fiscal  frontiers,  so  notions  of  importing  and  exporting
disappeared  within  the  EU.  As  a  result,  EU  citizens  can
buy  goods  in  the  Member  State  of  their  choice  and  pay
tax  on  them  only  at  the  point  of  purchase.  Despite
universal  recognition  for  the  huge  benefits  of  the  Single
Market,  it  was  realised  that  in  the  short  term  the  elimi(cid:220)
nation  of  fiscal  frontiers  might  harm  certain  sectors.

The  Council  therefore  took  specific  measures  to  help
those  sectors  to  adapt:

-(cid:217)it  established  a  trainig  programme  to  help  national
administrations(cid:216)(—) 
customs
reorganise 
operations  and  to  exchange  officials  (the  Matthaeus
programme);

their 

-(cid:217)it  launched  a  ECU  30  million  action  programme(cid:216)((cid:209))
designed  to  retrain  and  re(cid:220)employ  customs  agents
and  allowed  Member  States 
to  use  Community
structural  funds  (European  Social  Fund  and  Inter(cid:220)
reg  I)  to  introduce  accompanying  measures;  63(cid:216)000
customs  agents  have  been  helped 
these
schemes;

through 

-(cid:217)it  established,  though  decisions  in  1991  (VAT)  and
1992  (excise  duties),  a  transitional  regime(cid:216)((cid:210))  until  30
June  1999  to  allow  duty(cid:220)free  shops  to  continue
selling  a  set  allowance  of  goods  exempt  from  VAT
and/or  excise  duties  to  be  controlled  by  the  vendor.
This  regime  enabled  operators  of  duty(cid:220)free  shopping
facilities  to  prepare  for  and  adapt  to  an  internal
market  without  fiscal  frontiers.

(˛)(cid:217)Point  24  of  the  Conclusions  of  the  European  Council.
(ˇ)(cid:217)In  the  remainder  of  the  document,  the  term  "duty(cid:220)free  sales’

covers  both  tax(cid:220)  and  duty(cid:220)free  sales.

(—)(cid:217)Commission  Decision  No  94/844/EEC.
((cid:209))(cid:217)Council  Regulation  (EEC)  No  3904/92.
((cid:210))(cid:217)Council  Directive  91/680/EEC  and  Council  Directive

92/12/EEC.

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C  66/7

2.(cid:217)WHAT  DID  THE  SINGLE  MARKET  MEAN  TO  THE

DUTY(cid:220)FREE  SECTOR?

The  creation  of  the  Single  Market  and  the  abolition  of
fiscal  frontiers  took  away  the  possibility  for  all  retailers
to  exempt  or  reimburse  tax  paid  in  one  Member  State
when  goods  were  exported  to  another  Member  State.

But  to  limit  the  effect  of  this  decision  on  certain  retailers,
the  Council,  as  a  transitional  measure,  allowed  Member
States(cid:216)((cid:211))  to  exempt  from  VAT  and/or  excise  duties
goods  bought  by  people  travelling  within  the  EU  on
board  ferries,  on  aircraft,  or  at  airports  (the  Channel
Tunnel  Terminals  were  added  later).  All  Member  States
(Germany  and  Luxembourg  however  with  some  limi(cid:220)
tations)  adopted  this  measure.  There  are  no  duty(cid:220)free
sales  on  trains  or  coaches  within  the  EU.  It  should  be
noted  that  goods  can  only  be  sold  duty(cid:220)free  up  to  a
certain  value  or  quantity(cid:216)((cid:212)).  Very  often  customers  are
not  aware  that  there  is  no  duty(cid:220)free  on  big  ticket  items
(anything  over  EUR  90  for  example).

At  Council  level,  a  political  agreement  was  reached  on
to  be  observed  by
minimum  standards  of  control 
Member  States(cid:216)((cid:213)).  A 
the  Commission,
reviewing  this  new  control  system(cid:216)((cid:214))  showed  that  the
systems  put  into  place  did  not  in  all  cases  guarantee  that
the  limits  for  the  tax  exemption  are  respected.

report  by 

3.(cid:217)CHARACTERISTICS  OF  THE  DUTY(cid:220)FREE  SECTOR

In  general,  duty(cid:220)free  shops  benefit 
from  attractive
locations  and  a  relatively  captive  market,  thus  enjoying  a
natural  competitive  advantage.  The  tax  exemption  adds
an  important  element  of  further,  artificial  competitive
advantage  over  other  retailers  and  other 
transport
operators  (by  land  or  rail)  selling  goods  on  which  tax  is
paid.  Duty(cid:220)free 
thus  distorts  competition  not  only
traders,  but  especially  between  modes  of
between 
transport.

((cid:211))(cid:217)Artikel  28k  of  Directive  91/680/EEC  and  Article  28  of

Directive  92/12/EEC  respectively.

((cid:212))(cid:217)See  Table  1  of  Annex  I.
((cid:213))(cid:217)Guidelines 

for 
Community,  agreed  by 
14  December  1992.

the  control  of 

the
the  Council  of  Ministers  on

tax(cid:220)free 

sales 

in 

((cid:214))(cid:217)The  vendor  control  report  (COM(96)  245  of  26  July  1996).

than 

to  apply  higher  mark(cid:220)ups 

The  tax  exemption  enjoyed  by  duty(cid:220)free  shops  enables
them 
is  otherwise
practised  by  the  retail  sector.  Various  price  comparison
surveys(cid:216)(˛˝)  show  that,  to  the  travelling  consumer,  the
price  advantage  is  often  relatively  small  or  even  non
existent.  According  to  surveys,  duty(cid:220)free  prices  often
exceed  those  of  high  street  retailers.  Even  for  excisable
goods  (alcohol  and  tobacco)  where  the  level  of  the  excise
higher  than  VAT  in  the  majority  of  cases,  represents  the
highest  potential  for  lower  prices,  the  saving  passed  on
to  the  consumer  in  most  cases  represents  only  a  fraction
of  the  tax  exemption.  This  can  be  substantiated  when
comparing  the  before(cid:220)tax  price  and  the  retail  (after(cid:220)tax)
price.  Thus  the  tax  exemption  in  fact  subsidises  profits  of
duty(cid:220)free  firms  more  that  it  subsidises  the  demand  for
the  products  they  sell.  This  must  be  kept  in  mind  when
considering  the  possible  effects  of  the  abolition.

4.(cid:217)THE  DUTY(cid:220)FREE  SECTOR  IN  FIGURES (˛˛)

to 

from 

figures  available 

According 
the  duty(cid:220)free
industry,  the  total  1996  duty(cid:220)free  sales  by  EU  duty(cid:220)free
shops  situated  at  airports  and  on  board  aircraft  and
ferries  amounted  to  EUR  5,8  billion,  up  from  EUR  3,6
billion  in  1991.  Intra(cid:220)EU  duty(cid:220)free  activities  represented
71(cid:216)%  of  the  total  (EUR  4,1  billion)  which  is  equivalent
to  0,060(cid:216)%  of  the  1996  EU  GDP(cid:216)(˛ˇ).  The  increase  in
sales  clearly  indicates  that,  during  the  transitional  period
given  to  operators  of  duty(cid:220)free  shopping  facilities  to
enable  them  to  adapt  their  activities,  the  industry  has
expanded  its  business.

Duty(cid:220)free  activities  are  typically  grouped  in  three  broad
categories:  airports,  where 
sales
amounted  to  EUR  1,6  billion  (39(cid:216)%),  ferries,  with  sales
of  EUR  2,1  billion  (51(cid:216)%),  and  airlines,  with  sales  of
EUR  0,4  billion  (10(cid:216)%).

intra(cid:220)EU  duty(cid:220)free 

Traditionally,  the  products  sold  by  duty(cid:220)free  shops  are
grouped  into  four  separate  categories:  wine  and  spirits,
tobacco,  fragrances  and  cosmetics  and  miscellaneous.
Looking  at 
sector
regarding  intra(cid:220)EU  duty(cid:220)free  sales,  "miscellaneous’  with
a  turnover  of  EUR  1,2  billion  accounted  for  29(cid:216)%  of
sales.  With  sales  of  EUR  1,1  billion,  wines  and  spirits
represented  a  share  of  27(cid:216)%.  Sales  of  fragrances  and

the  duty(cid:220)free 

figures 

from 

the 

(˛˝)(cid:217)For  example  by  the  European  Consumers  Organisation
(BEUC(cid:220)study  in  1994)  and  by  the  Commission  (December
1998).
(˛˛)(cid:217)See  Annex  I.
(˛ˇ)(cid:217)It  should  be  noted  that  this  indicator  overestimates  the  size
of  the  sector  since  the  sales  (turnover)  include  the  value  of
the  input  from  other  sectors  to  the  duty(cid:220)free  business  (i.e.
the  merchandise).  The  value  added  by(cid:220)free  activities  can  be
estimated  at  around  0,02(cid:216)%  of  GDP.

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9.3.1999

cosmetics  and  sales  of  tobacco  each  amounted  to  ECU
0,9  billion  which  is  22(cid:216)%  of  sales  for  each  group.  In
total,  excisable  products 
tobacco
products)  represented  49(cid:216)%  of  total  intra(cid:220)EU  duty(cid:220)free
sales.

(i.e.  alcohol  and 

The  duty(cid:220)free  sector  itself(cid:216)(˛—),  based  on  1996  figures,
has  estimated  that  duty(cid:220)free  shops  and  activities  involve  a
total  of  140(cid:216)000  people.  Since  70(cid:216)%  of  sales  are  made  on
intra(cid:220)EU  voyages,  it  can  be  assumed  that  around  100(cid:216)000
of  these  jobs  are  related  to  intra(cid:220)EU  duty(cid:220)free  activities.
This  is  equivalent  to  0,066(cid:216)%  of  total  EU  employment  in
1996.

As  indicated  in  Annex  I,  sales  per  employee  in  the  retail
trade  are  EUR  146(cid:216)000.  However,  sales  per  employee  in
the  intra(cid:220)EU  duty(cid:220)free  sector  are,  based  on  the  above
figures,  only  EUR  41(cid:216)000.  This  implies  either  that  there
are,  in  fact,  less  people  employed  in  the  duty(cid:220)free  sector
or  that  the  figure  of  100(cid:216)000  includes  people  not  directly
involved  in  sales  activities.

It  is  difficult  to  allocate  jobs  per  product  category.  Given
that  excisable  products  (spirits  and  tobacco)  represent
49(cid:216)%  of  total  intra(cid:220)EU  duty(cid:220)free  sales(cid:216)(˛(cid:209)),  it  is  people
working  in  this  category  who  might  be  affected  the  most
by  the  abolition.  However,  it  is  likely  that  fewer  people
are  employed  pro  rata  for  sales  of  wines,  spirits  and
tobacco  than  for  sales  of  miscellaneous  goods  for  which
larger  selling  spaces  exist  and  more  sales  assistance  is
needed.

5.(cid:217)WHAT 

IMPACT  MIGHT  THE  1991  AND  1992

COUNCIL  DECISIONS  HAVE  ON  EMPLOYMENT?

In  order  to  examine  the  employment  impact  of  the
Council’s  decisions  to  abolish  intra(cid:220)EU  duty(cid:220)free  sales,
the  framework  of  any  potential  employment  impact  must
be  properly  established.

5.1.(cid:217)ACCORDING  TO  THE  INDUSTRY

The  duty(cid:220)free 
industry  estimates  that,  following  the
abolition  of  intra(cid:220)EU  duty(cid:220)free  sales,  the  direct  impact
on  employment  is  50(cid:216)000  affected  jobs.  When  including
the
the  potential 

impact  on  employment, 

indirect 

(˛—)(cid:217)The  European  Travel  Research  Foundation  (EFRF).  The
organisation  was  created  in  1995  by  the  duty(cid:220)free  industry.
It  has  30  members  representing  duty(cid:220)free  shop  operators
and  producers  and  distributors  of  products  for  the  duty(cid:220)free
market.

(˛(cid:209))(cid:217)See  Table  4  of  Annex  I.

lower  profits, 

the  sector  estimates  that  as  much  as  140(cid:216)000  jobs  might
be  affected(cid:216)(˛(cid:210)).  This  would  be  the  result  of  lower  sales
and 
transport  prices  higher,
dampening  demand  and  leading  to  job  losses  in  the
transport  sector.  Ultimately  that  could  have  adverse
effects  on 
(e.g.
shipyards).

capital  products 

intermediate  or 

forcing 

The  aggregate  estimates  are  based  on  industry(cid:220)commis(cid:220)
sioned  studies  that  make  use  of  different  methods  and
assumptions.  These  estimates  are  arrived  at  by  adding  up
the  country  specific  figures,  which  include  all  possible
negative  factors,  while  disregarding  positive  employment
effects  taking  place  in  duty(cid:220)paid  retail  outlets.  Inde(cid:220)
pendent  studies(cid:216)(˛(cid:211))  indicate  that  this  methodology  over(cid:220)
estimates  the  figures  for  jobs  affected.

5.2.(cid:217)ACCORDING  TO  MEMBER  STATES

National  studies  carried  out  by  five  Member  States
confirm  that  the  obligation  of  intra(cid:220)EU  duty(cid:220)free  sales
would  not 
levels  overall(cid:216)(˛(cid:212)).
According  to  these  studies,  the  impact  on  employment  is
likely  to  be  of  a  specific  and  local  nature,  mainly  in  the
maritime  sector.

impact  on  employment 

(˛(cid:210))(cid:217)International  Duty  Free  Confederation 
Francaise 

(IDFC)  and
Association 
Commerce  Hors(cid:220)Taxes
de 
(AFCOHT);  Contribution  of  Duty(cid:220)Tax(cid:220)Free  Sales  to  the  EU
and  its  citizens,  September  1997.

(˛(cid:211))(cid:217)A  study  carried  out  by  Institut  f(cid:190)r  Wirtschaft  of  Munich  on
the  European  Internal  Market  and  the  system  of  duty(cid:220)free
arrangements  (IFO  Financial  Policy  Studies  68,  1998)
considered  that  in  most  of  the  studies  conducted  by  or  on
behalf  of  the  duty(cid:220)free  sector,  the  employment  impact  had
been  overestimated.

for 

(˛(cid:212))(cid:217)Denmark:  Report  on  the  assessment  of  the  consequences  of
ending  duty(cid:220)free  trade  for  visitors  between  Denmark  and
EU  countries  1  July  1999,  December  1997,  the  Ministry  of
Taxation.
France:  Report  to  the  Prime  Minister  on  the  abolition  of
duty(cid:220)free  sales  in  Europe:  Impact  and  proposals,  23  July
the
1998,  drafted  by  Mr  Andr~  Capet,  Deputy 
Pas(cid:220)de(cid:220)Calais  (France).
Ireland:  Report  on  the  impact  of  abolition  of  Duty  Free
and  Tax  Free  sales  for  EU  travel  in  1999,  March  1998,
KMPG  Management  Consulting 
in  association  with
Fitzpatrick  Associates  and  MDS  Transmodal,  commissioned
by  the  Department  of  Finance.
Sweden:  Report  on  the  consequences  of  the  phasing  out  of
tax(cid:220)free  selling  in  the  EU  (Government  Official  Report),  25
March  1998,  the  Ministry  of  Transport  and  Communi(cid:220)
cations.
United  Kingdom:  Study  into  the  economic  consequences  of
abolition  of  duty  free  allowances  within  the  EU,  1998,  the
Department  of 
the
Regions.

the  Environment,  Transport  and 

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To  explore  this  further,  the  Commission  asked  Member
States  to  provide  any  information  that  would  help  ident(cid:220)
ifying  the  scale  and  scope  of  local  employment  problems.
It  has  received  information  from  the  national  adminis(cid:220)
trations  of  all  Member  States(cid:216)(˛(cid:213))  corroborating  the  view
impact  on
that 
employment 
intra(cid:220)EU
duty(cid:220)free  sales.

there  would  not  be  an  overall 

abolition  of 

following 

the 

This  in  confirmed  by  the  experience  of  US  airports,
where  duty(cid:220)free  sales  have  never  been  allowed  for
internal  flights  and  where  nevertheless  there  is  a  huge
and  growing  market.  This  is  confirmed  by  the  expansion
of  ordinary  shopping  malls  in  airports,  as  the  result  of  a
growing  demand  from  travellers,  which  have  attracted
international 
from  European
duty(cid:220)free  operators.

investments, 

including 

5.3.(cid:217)EVALUATION

Firstly,  it  should  not  be  forgotten  that  the  abolition,  on
30  June  1999,  only  applies  to  intra(cid:220)EU  duty(cid:220)free  sales,
and  travellers  departing  to  third  country  destinations  will
still  be  entitled  to  make  duty(cid:220)free  purchases.

Equally,  the  abolition  of  duty(cid:220)free  sales  will  not  affect
EC  provisions  concerning  ship  stores,  which  allow
Member  States  to  exempt  from  VAT  and  excise  duties
supplies  of  goods  for  consumption  on  board.  This  is
particularly  important  in  the  case  of  cruise  lines.

Employment  in  the  duty(cid:220)free  sector  consists  primarily  of
jobs  in  the  transport  or  related  industries  which  only
partly  depend  on  duty(cid:220)free  sales.  The  growing  demand
for  transport  services  is  not  likely  to  be  significantly
affected  by  the  abolition  of  duty(cid:220)free,  since  most  people
travel  because  they  need  to.  It  is  only  in  the  maritime
sector  where,  in  addition  to  genuine  travellers,  there  also
exists  a  category  of  people  who  travel  to  purchase.
However,  even  the  one(cid:220)day  ferry  excursions  are  often
not  solely  purchased  for  duty(cid:220)free  reasons,  but  in  order
to  shop  in  Member  States  with  lower  excise  duties.

Moreover,  it  must  not  be  forgotten  that  duty(cid:220)free  sales
often  enjoy  economies  of  scope,  i.e.  the  same  worker  is
allocated  both  to  normal  transport  related  activities  and
to  selling  duty(cid:220)free  products,  and  in  fact  in  serveral
instances,  like  in  the  case  of  flight  attendants,  safety
regulations  and  not  sales  productivity  determine  their
numbers.  For  most  travellers  the  possibility  of  duty(cid:220)free
purchases  is  only  an  additional  attraction.  While  waiting
at  the  airport  or  spending  time  on  the  ferry,  shopping  is
one  of  the  prime  ways  to  pass  the  time,  and  that  is  likely
to  be  the  case  even  after  the  abolition  of  duty(cid:220)free  sales.

(˛(cid:213))(cid:217)See  Annex  II.

that 

idea 

the  reason 

the 
is  not  necessarily 
large  extent 

For  all  these  reasons  shopping  will  continue  to  exist  after
the  abolition  of  duty(cid:220)free  sales  and  sales  assistants,  shelf(cid:220)
stockers,  etc.  will  still  be  needed.  For  many  products  sold
in  duty(cid:220)free  shops  the  unique  selling  position  of  the
outlets  must  be  considered  a  factor,  the  difference
between  some  prices  duty(cid:220)free  and  tax  paid  is  often  very
for
small.  This  supports 
the  price
travellers’  purchases 
advantage  but 
the  comparatively
to  a 
favourable  location  of  duty(cid:220)free  shops  or  the  attraction
of  the  product  itself  (for  exemple  smokers  will  not  quit
just  because  they  will  no  longer  be  able  to  buy  their  ciga(cid:220)
rettes  duty(cid:220)free).  Consequently,  a  sizeable  impact  on  the
aggregate  sales  of  the  goods  concerned  is  not  to  be
expected,  since  the  total  final  demand  will  be  simply
re(cid:220)oriented  to  normal  outlets  without  decreasing 
in
total(cid:216)(˛(cid:214)).  It  is  therefore  unlikely  that  the  abolition  will
have 
the
sizeable  negative  employment  effects  on 
production  side  even  in  the  short  term.

sales.  Examples 

It  is  however  acknowledged  that  some  specific  ferry  lines
might  be  affected.  It  is  clear  that  ferry  services  depend
more  heavily  on  revenues  from  duty(cid:220)free  sales  than
airports  and  airlines.  The  information  available  to  the
Commission  seems  to  indicate  that  a  number  of  ferry
the
services  might  be  reduced  or  closed  following 
abolition  of  duty(cid:220)free 
the
include 
connection  all  the  year  around  between  two  Interreg(cid:220)
regions  in  the  northern  part  of  the  Gulf  of  Bothnia,
certain  short(cid:220)distance  services  between  Germany  and
Denmark  and  at  the  least  one  service  between  Ireland
and  France.  For  these  three  specific  examples,  the  direct
employment  loss  can  be  estimated  at  up  to  100  jobs.
Whilst  this  suggests  that  there  could  be  significant  effects
elsewhere  in  the  ferry  sector,  the  total  effect  on  the
sector  as  a  whole  is,  however,  likely  to  be  more  limited
because  the  frequency  of  a  majority  of  ferry  services  will
not  be  substantially  affected  by  the  abolition  of  duty(cid:220)free
sales.

(˛(cid:214))(cid:217)It  is  true  that  demand  for  these  goods  has  been  steadily
falling  while  their  after(cid:220)tax  prices  increased  over  the  last
two  decades.  Still,  high  excise  duties  only  explain  a
marginal  part  of  the  trend.  Changes  in  social  habits  and
tastes,  as  well  as  health  considerations  have  been  the  major
driving  forces  reducing  the  demand  for  wines,  spirits  and
tobacco.

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Conversely, 
in  duty(cid:220)free
the  employment  reduction 
outlets  would  be  compensated  by  a  corresponding
increase  in  ordinary  shops,  whose  organisations  have
complained 
the  present
distortion  of  competition.

the  Commission  about 

to 

that 

in  1996 

the
The  Commission  has  calculated 
duty(cid:220)free  regime  could  have  cost  Member  States  up  to
EUR  2  billion  in  lost  tax  revenue.  Taking  into  account
the  difficulty  of  calculating  the  real  excise  duty  at  stake,
even  on  the  most  conservative  estimate  the  lost  revenue
in  1996  would  have  been  at  least  EUR  1  billion.  This  lost
revenue  would  of  course  be  higher  today.  It  is  effectively
the  European  tax(cid:220)payer  who  finances  the  duty(cid:220)free
exemption.  If  this  money  were  instead  used  to  reduce  the
generally  applied  levels  of  indirect  taxation,  consumption
would  increase  and  a  net  creation  of  new  jobs  could  be
expected.

In  this  context,  the  Commission  is  submitting  to  the
Council  a  proposal  on  the  possibility  of  an  experimental
application  of  reduced  VAT  rates  to  labour  intensive
services.  This  is  an  instrument  to  convey  in  support  of
employment  the  tax  receipts  deriving  from  the  abolition
of  duty(cid:220)free  sales.

This  positive  effect  would  be  even  more  significant  if
such  revenues  were  used  to  finance  a  reduction  in  social
security  contributions  targeted  at  relatively  unskilled  and
low(cid:220)paid  workers, 
in  accordance  with  the  proposed
Employment  Guidelines  for  1999(cid:216)(ˇ˝).  The  phasing  out  of
duty(cid:220)free  sales  could  thus  lead  in  the  longer  term  to  net
job  creation  if  the  revenue  were  used  to  reduce  the  tax
burden  on  labour.  Previous  experience  and  published
simulations  by  the  Commission  departments  show  that
in  the
targeted  reductions  of  non(cid:220)wage 
order  of  EUR  1  billion  could  lead  to  a  net  creation  of
the  order  of  20(cid:216)000  new  jobs(cid:216)(ˇ˛).

labour  costs 

Alternatively,  Member  States  could  use  this  amount  to
consolidate  public  finances,  as  reiterated  by  the  Council
in  the  Stability  and  Growth  Pact  and  in  the  Broad
Economic  Policy  Guidelines.

change  from  a  tax  exemption  to  a  reduction  in  non(cid:220)wage
labour  costs,  consolidation  of  public  finances  -  would
outweigh  the  short  term  job  losses.

In  conclusion,  the  analysis  suggests  that  unemployment
effects  will  be  time(cid:220)limited  and  confined  to  specific
geographical  and  economic  sectors,  while  in  the  medium
term  net  employment  gains  can  be  expected.

6.(cid:217)POLICY  ACTION

6.1.(cid:217)EXTENSION  OF  THE  TRANSITIONAL  PERIOD

An  extension  of  the  transitional  period,  allowing  intra(cid:220)
Community  duty(cid:220)free  sales  to  continue  beyond  30  June
1999,  could  take  several  forms:  an  extension  for  a  period
of  time  to  be  determined,  or  limited  to  certain  sectors,
or 
certain  products.  Certain  general
considerations  apply  to  all  these  variants.

limited 

to 

The  extension  of  duty(cid:220)free  would  prolong  discrimination
between  comparable  transport  modes  (i.e.  air,  sea  and
rail  links  between  Member  States  without  intermediary
calls).  Only  air  and  sea  transport  benefit  from  the
duty(cid:220)free  arrangements,  rail  transport  is  excluded  from
the  scheme,  while  road  transport  has  no  access  to  it.

There  is  a  genuine  risk  that  operators  who  are  adversely
affected  by  distortion  of  competiton  caused  by  duty(cid:220)free
sales  would  challenge  before  the  Courts  the  validity  of
any  extension  of  duty(cid:220)free.  The  recent  Eurotunnel
case(cid:216)(ˇˇ)  clearly  demonstrated  that  operators  may  well
the
challenge 
European  Court  of 
the
Justice, 
framework  of  an  Article  177  preliminary  ruling.  Bodies
with  vested 
their
intention  to  challenge  before  the  Court  any  prolongation
of  the  duty(cid:220)free  regime.

the  validity  of  EC  provisions  before 
in 

interests  have  already  expressed 

in  particular 

It  is  clearly  a  matter  for  individual  Member  States  to
decide  which  of  these  courses  to  follow.  However,  in  the
long  term,  the  combination  of  these  effects  -  movement
of  demand  from  duty(cid:220)free  shops  to  high  street  shops,

(ˇ˝)(cid:217)Proposal  for  a  Council  Resolution  on  the  1999  Employment

Guidelines,  18  January  1999.

(ˇ˛)(cid:217)OECD 

(1997)  Taxation  and  Economic  Performance.

European  Commission  (1994)  European  Economy  No  56.

Any  new  proposal  by  the  Commission  would  need  to
take  into  account  the  State  aid  rules.  Allowing  sales  of
goods  without 
imposing  the  VAT  and  excise  duty
normally  due  constitutes  an  economic  advantage  to  the
the  case  of
this  privilege  which, 
beneficiary  of 
include  professional  operators,  and
duty(cid:220)free,  would 

in 

(ˇˇ)(cid:217)Judgement  of  11  November  1997,  Case  C(cid:220)408/95.

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transport  enterprises.  The  duty(cid:220)free  privilege  could
therefore  be  considered  as  an  operating  aid  which  the
Commission  would  have  to  evaluate  according  to  the
Treaty.

There  is  a  risk  that  any  extension  would  be  inconsistent
with  EU  policy  in  other  areas,  e.g.  health  policy  by
encouraging  access  to  low(cid:220)priced  tobacco  and  alcohol.  It
should  be  noted  that  in  terms  of  turnover  generated  by
duty(cid:220)free  sales,  alcohol  and  tobacco  account  for  about
one  half.

Finally,  options  for  an  extension  share  another  important
characteristic.  Insofar  as  they  constitute  a  prorogation  of
a  transitional  period  set  by  a  Council  decision,  they  have
an  influence  on  any  provision  of  Community  legislation
based  on  the  credibility  of  transitional  periods.  Within
the  specific  taxation  domain,  the  credibility  of  important
elements  of  the  Community  policy,  addressed,  among
other  objectives,  to  the  orientation  of  taxation  system  in
a  more  employment  friendly  way,  would  be  put  at  risk.
In  the  specific  case  of  the  code  of  conduct  on  business
taxation,  whose  mechanism  hinges  on  a  political
commitment  of  Member  States  to  roll  back  within  a  set
limit  of  time  on  the  measures  deemed  as  harmful  by  the
Council,  the  further  prorogation  of  a  much 
longer
implementation  period  of  more  than  seven  years  set  in  a
through  a  Directive  would
legally  binding  way 
undermine  the  whole  engagement.

In  addition  to  the  above,  specific  considerations  apply  to
the  different  forms  that  might  be  taken  by  an  extension
of  the  transitional  period.

1.(cid:217)A  time(cid:220)limited  extension

One  possible  option  could  be  to  allow  duty(cid:220)free  sales  to
be  maintained  for  a  time  limited  period.  In  the  short
term  (a  period  of  six  months  or  a  year  has  been
mentioned),  extension  would  have  no  real  and  persistent
impact  on  emloyment  because  it  would  not,  by  defi(cid:220)
nition,  enable  effects  to  be  spred  over  time.

A  further  extension  risks  sending  confusing  signals  to  the
duty(cid:220)free  industry.  Believing  that  yet  further  extensions
may  be  subsequently  possible,  operators  could  delay
making  the  necessary  adjustments.  In  the  longer(cid:220)term,
this  could  exacerbate  any  employment  problem.  The
evidence  of  the 
last  seven  years  suggests  that,  for
perfectly  justifiable  commercial  reasons,  the  operators  in
the  strongest  position  would  seek  to  develop  the  market
to  increase  profits,  while  those  facing  difficulties  could
be  tempted  to  postpone  inevitable  structural  adjustments.

Furthermore,  this  option  would  only  address  possible
sectoral  employment  difficulties  if  the  duty(cid:220)free  industry
uses  it  to  truly  prepare  for  the  abolition.  If  not,  this
would  lead  to  an  aggravation  of  some  of  the  structural
problems  of  the  sectors  concerned.

2.(cid:217)An  extension  limited  both  in  time  and  to  certain

sectors  (e.g.  the  ferries)

Given  their  specific  features,  the  different  branches  of
the  duty(cid:220)free  business  are  not  equally  affected  by  the

abolition  of  duty(cid:220)free  sales  in  the  Union.  One  possible
option  could  therefore  be  to  allow  duty(cid:220)free  sales  to  be
maintained,  for  a 
limited  period,  only  by  the  ferry
operators,  since  their  business  is  more  heavily  dependent
on  duty(cid:220)free  sales  than  the  airports  and  airlines.  Whilst
having 
limited
approach,  this  would  however,  by  definition,  constitute
the  principle  of  equal
an  even  greater  breach  of 
in
treatment  and  would 
treatment  between  modes  of  transport.

the  advantage  of  a  more 

reinforce  any  differences 

targeted, 

exceptional 

circumstances  where 

Commission  guidelines  for  state  aid 
in  the  maritime
sector  already  provide  the  framework  for  the  support  of
links  by  Member  States.  These  guidelines  are
ferry 
restrictive  since  they  give  consent  to  operating  aid  only
in 
are
subsidised  within  a  public  service  contract.  Member
States  must  normally  conclude  open(cid:220)tender  contracts  for
links  deemed  essential.  But,  if  a  Member  State  were  to
consider 
to  maintain
support  were  necessary 
essential  links,  these  guidelines  would  have  the  advantage
of  transparency  and  would  avoid  the  legal  uncertainties
inherent  in  the  prolongation  of  duty(cid:220)free  exemptions.

services 

that 

In  conclusion,  whilst  this  second  option  would  be  more
targeted,  it  would,  in  consequence,  further  aggravate  the
currently  existing  distortions.  Moreover,  it  would  only
address  possible  sectoral  employment  difficulties 
it
were  to  be  used  to  truly  prepare  for  abolition  and  could
also  contribute 
sector’s
structural  difficulties.

to  an  aggravation  of 

the 

if 

3.(cid:217)A  progressive  introduction  of  excise  duties  (on  alcohol

and  tobacco)  and  immediate  application  of  VAT

This  option  was  put  forward  in  a  French  study  published
in  July  1998(cid:216)(ˇ—).  This  approach  suggests  treating  VAT
and  excise  duties  differently  when  abolishing  duty(cid:220)free
sales.  In  the  solution  proposed,  VAT  would  be  applied
from  1  July  1999  and  excise  duties  phased(cid:220)in  in  thirds
until  they  reach  the  average  European  rate  (for  tobacco
and  alcohol).  Between  then  and  a  future  date,  excise
duties  would  be  harmonised  or,  if  harmonisation  could
not  be  achieved,  raised  by  each  Member  State  to  its
normal  national  rate.  It  is  based  on  the  assumption  that
the  advantage  for  the  consumers,  in  terms  of  VAT,  is
fairly  limited,  because  only  goods  worth  less  than  EUR
90  are  exempted  from  VAT  under  the  duty(cid:220)free  regime
(e.g.  there  is  no  tax  exemption  for  high  priced  luxury
goods  such  as  cameras).

The  potential  attraction  of  such  an  approach  is  that  it
will  force  the  operators  to  make  a  gradual  adaptation.
However, 
to
implement  not  least  because  in  the  same  fiscal  territory
there  would  be  two  separate  rates.

it  would  be  very  difficult 

technically 

(ˇ—)(cid:217)Report  to  the  Prime  Minister  on  the  abolition  of  duty(cid:220)free
sales 
in  Europe:  Impact  and  proposals,  23  July  1998,
drafted  by  Mr  Andr~  Capet,  Deputy  for  the  Pas(cid:220)de(cid:220)Calais
(France).

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Moreover 
the  general
this  option  would  contradict 
principle  laid  down  in  Community  excise  legislation  that
only  one  rate  may  be  applied  within  a  Member  State.  If  a
first  exception  to  this  principle  were  made,  it  would  give
rise  to  pressure  for  applying  reduced  rates  in  other  areas,
especially  in  frontier  regions.  It  would  also  mean  that
operators  would  incur  increased  administrative  costs  as  a
result  of  the  gradual  adaptation  required.

Finally,  this  option  does  not  resolve  the  problem  of
unequal  treatment  of  comparable  modes  of  transport  nor
are  the  benefits  in  terms  of  employment  particularly
sectors  of
obvious 
duty(cid:220)free  sales  are  less  labour(cid:220)intensive.

the  alcohol  and 

tobacco 

since 

immediately  as  above,  but  to 

A  slight  variant  of  this  option  would  be  to  introduce
introduce  excise
VAT 
duties  in  just  one  step  at  a  later  stage.  This  would  be
technically  easier  but  does  not  have  the  attraction  of  the
gradual  approach.  Moreover,  it  could  implicity  result  in
an  unlimited  extension  of  duty(cid:220)free  sales,  as  unanimity
if  not
on 
impossible  to  reach.

rate  harmonisation  would  be  difficult 

6.2.(cid:217)ACTION  TO  TACKLE  SPECIFIC  EMPLOYMENT

PROBLEMS

in  Vienna,  namely 

This  approach  has  the  great  advantage  of  directly
tackling  the  central  problem  raised  by  the  European
Council 
the  possible  effect  on
employment  of  the  abolition  of  intra(cid:220)EU  duty(cid:220)free  sales.
The  Commission  staff  working  paper  of  20  November
1998  (SEC(98)  1994)  sets  out  the  general  framework  in
which  Community  instruments  can  be  employed  in  these
circumstances.

1.(cid:217)Within 

the 

framework  of 

existing  Community

instruments

Within  this  framework  and  under  existing  procedures,
appropriate  responses  could  be  found  to  problems  of  a
local  or  regional  nature.  Both  the  national  studies  and
independent  studies  concluded  that  the  abolition  of
duty(cid:220)free  sales  would  not  have  any  marco(cid:220)economic
impact  and  that  any  impact  at  micro(cid:220)economic  level
would  be  of  a  limited  regional  or  local  nature.

It  would  be  coherent  to  pursue  a  solution  that  would  fall
within  the  framework  of  existing  Community  policy
objectives  to  target  any  local,  regional  or  social  problems
that  Member  States  may  identify.

-(cid:217)Structural  Funds

the 

following 

encounter 

economic  and  social  problems  that  certain  regions
abolition.  For
might 
example, 
finances
the  European  Social  Fund 
vocational  training  for  persons  threatend  with  unem(cid:220)
ployment  anywhere  in  the  Community  (Objective  4).
The  current  programming  period  for  the  Structural
Funds  expires  at  the  end  of  1999.  Examination  of  the
status  at  1  January  1999  of  financial  programming
for  all  the  Structural  Funds  over  the  current  period
(1994(cid:220)1999)  suggests  that  Member  States  still  have
significant  room  for  manoeuvre  to  cover  measures
that  would  help  absorb  possible  consequences  of
abolition.  Some  of 
involve  measures
already  planned  under  the  programmes,  but  it  is
expected  that  there  is  also  room  for  some  reallo(cid:220)
cation  of  funds  to  additional  activities  specifically
aimed  at  remedying  the  regional  and  local  conse(cid:220)
quences  of  abolition(cid:216)(ˇ(cid:209)).

this  could 

To  date,  Member  States  have  not  requested  any
action  to  be  taken.  The  Commission  will  nevertheless
give  favourable  consideration  to  any  request  made
before  the  end  of  this  year  by  a  Member  State  or
region  for  measures  of  that  nature  to  be  included  in
programmes  currently  being 
implemented.  Because
the  current  programming  period  expires  at  the  end  of
1999,  it  should  be  emphasised  that  the  decisions  the
Commission  will  have 
such
requests  will  also  need 
taken  before  31
December  1999.

to  make 
to  be 

following 

The  next  programming  period,  which  will  run  from
2000  to  2006,  offers  the  advantage  of  allowing  the
Member  States  and  regions  concerned  more  time  to
propose  structural  measures  to  alleviate  any  economic
and  social  difficulties  arising  at  regional  or 
local
level.  Measures  of  this  nature  could  be  proposed  by
way  of  generic  assistance  (the  new  Objectives  1,  2
and  3)  and  under  the  Interreg  III  initiative.  Regions
in  which  economic  activity  is  heavily  dependent  on
duty(cid:220)free 
for
assistance  under  Objective  1  could  be  proposed
by  the  national  authorities  for  support  under  Objec(cid:220)
tive  2.

sales  but  which  are  not  eligible 

- Cohesion  Fund

As  far  as  the  Cohesion  Fund 
is  concerned,  the
Member  States  affected  could  target  projects  on  port
and  airport 
infrastructures  fulfilling  the  eligibility
criteria  of  the  Fund  and  in  particular  belonging  to  the
TENs  (Trans  European  Networks).

Within  this  framework,  the  Commission  will  give
favourable  consideration  to  any  request  made  before
this  year  by  a  Member  State  or
the  end  of 

As  has  been  pointed  out  in  the  Commission  working
paper,  the  Structural  Funds  can  help  to  alleviate

(ˇ(cid:209))(cid:217)See  Annex  III.

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region  for  measures  of  this  nature  to  be  inluded  in
programmes  currently  being  implemented.  Since  the
current  programming  period  will  expire  at  the  end  of
the  year,  the  Commission  must  be  able  to  decide  on
any  such  requests  before  31  December  1999.

- State  aid

As  discussed  above,  Member  States  wishing  to  grant
State  aid  in  order  to  tackle  local  employment  diffi(cid:220)
culties  in  the  duty(cid:220)free  sector  have  to  comply  with
the  Community  rules  on  State  aid.  However,  special
rules  apply  to  aid  for  small  and  medium(cid:220)sized  enter(cid:220)
prises,  for  employment  and  for  regional  development.
In  the  transport  sector,  the  attention  of  Member
States  has  been  drawn  to  Community  guidelines  on
State  aid  to  the  maritime  and  air  transport  industries.

In  conclusion,  the  Commission  encourages  Member
States  to  apply  for  assistance  under  the  Structural
Funds  or  ad  hoc  initiatives  (notably  for  SMEs),  or  for
securing  approval  of  State  aid  under  the  relevant
guidelines  laid  down  by  the  Commission.

2.(cid:217)A  specific  Community  measure

To  the  extent  that  existing  Community  instruments  do
not  provide  an  adequate  basis  to  resolve  the  short  term,
specific  problems 
identified,  an  additional  possibility
could  be  the  creation  of  a  new  and  separate  measure  to
provide  specific,  targeted  support,  along  similar  lines  to
the  1992  Regulation  on  customs  agents(cid:216)(ˇ(cid:210)).  The  aim  of
such  an  instrument  could  be:

-(cid:217)to  provide  specific,  targeted  support  to  those  areas
particularly  dependent  on  duty  free  sales  in  terms  of
both  employment  and  income,

-(cid:217)to  contribute  to  the  conversion  of  the  most  heavily
affected  enterprises  in  the  sector  with  a  view  to  main(cid:220)
taining 
jobs  through  diversification  (and  creating
alternative  employment).

effectiveness 

Any  such  proposal  would  need  a  clear  assessment  of  the
potential 
these
and 
measures,  together  with  an  identification  of  the  scale  of
the  problem  and  the  target  beneficiaries.  It  would  also
have  to  be  in  line  with  the  new  financial  perspectives  and
comply  with  the  relevant  Community  rules  (e.g.  State
aids).

value(cid:220)added  of 

(ˇ(cid:210))(cid:217)See  Chapter  1  of  this  communication.

7.(cid:217)CONCLUSIONS

-(cid:217)The  Commission’s  analysis,  corroborated  by 

the
is  that  the
estimates  supplied  by  Member  States, 
impact  employment  of  the  abolition  of 
intra(cid:220)EU
duty(cid:220)free  sales  is  likely  to  be  time  limited  and  specific
in  terms  both  of  localities  and  sectors  affected  with
maritime  activities  (transport  and  harbour  services)
being  potentially  the  most  affected.

-(cid:217)On  the  other  hand,  analysis  done  by  the  Commission
and  confirmed  by  at  least  the  only  Member  State
who  developed  such  an  approach  is  that  the  result  of
revenue  recycling  and  sales  re(cid:220)location  can  well,  in
the  medium  term,  lead  to  a  net  creation  of  jobs.

-(cid:217)The  Commission  gives  the  highest  priority  to  job
promotion.  It  considers  that  the  effects  on  other
sectors  (in  particular,  other  modes  of  transport  and
ordinary  retail)  should  also  be  taken  into  account.  In
addition,  the  Commission  believes  that  job  promotion
should  be  pursued  through  several  coherent  policy
measures, 
the
European  Council  -  aimed  at  making  tax  systems
more  employment(cid:220)friendly  by  countering  harmful  tax
competition.

stressed  by 

those  - 

including 

-(cid:217)The  Commission 

that 

considers 

an
therefore 
extension  of  the  duty(cid:220)free  arrangements  would  not
efficiently  address  the  type  of  limited  and  specific
employment  problems  it  has  identified.  It  is  too  broad
an  instrument  and  it  would  also  be  relatively  costly
given  the  limited  employment  impact  of  abolition  on
the  European  economy.  Moreover,  experience  has
shown 
duty(cid:220)free
commercial
encourage 
arrangements  does  not 
operators  to  prepare  for  a  new  situation.

continuation 

that 

the 

of 

-(cid:217)To  meet  the  limited  and  specific  employment  effects
that  might  arise,  the  Commission  considers  that  the
appropriate  response  is  to  use  existing  Community
instruments  described  above. 
therefore  urges
Member  States  to  exploit  fully  all  possibilities  offered
within  the  current  EC  framework  for  Structural
in  the  future  framework  (2000(cid:220)2006)
Funds  and 
submitting  specific  funding  proposals.

It 

-(cid:217)In  addition,  and  if  the  Council  deems  it  appropriate,
is  room  for  developing  a  new  measure  to
there 
answer  the  limited  and  specific  employment  problems
tailored
identified, 
form  of  a 
Community 
the
Commission  would  be  ready  to  submit  a  proposal
should  the  Council  request  it.

financial  measure  on  which 

specially 

the 

in 

C  66/14

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9.3.1999

ANNEX  I

Table  1:  Travellers’  allowances  applicable  within  EU  travel

Alcoholic  beverages

Tobacco  products

Perfume  and  toilet  water

Other  goods

500  g  of  perfume;
and
250  ml  of  toilet
water

Total  value  of  EUR
90(cid:216)(˛)

1  litre  of  spirits  or  strong
liqueurs  over  22(cid:216)%  by
volume;
or
2  litres  of  spirits  with  an
alcoholic  strength  of  not  more
than  22(cid:216)%  by  volume;
or
2  litres  of  fortified  wine  and
sparkling  wines;
and
2  litres  of  still  wine

200  cigarettes;
or
100  cigarillos;
or
50  cigars;
or
250  g  of  smoking
tobacco

(˛)(cid:217)This  value  was  increased  from  EUR  45  to  EUR  90  from  1  April  1994.

Table  2:  Turnover  generated  by  duty(cid:220)free  sales  according  to  the  duty(cid:220)free  sector

1991

Total  duty(cid:220)free  sales

3,6

1992

3,9

1993

4,5

1994

4,7

1995

5,4

1996

5,8

(EUR  million)

EU  duty(cid:220)free  sales

-

-

-

3,7

4,1

Source:  European  Travel  Research  Foundation(cid:216)(˛).
(˛)(cid:217)See  footnote  13.

Table  3:  Turnover  by  the  retail  sector  in  general  and  the  duty  free  sector  in  particular

Retail  sector  in  total  (EUR  billion)(cid:216)(˛)

Duty(cid:220)free  sector  (EUR  billion)

Duty(cid:220)free  sales  as  %  of  total  retail

Retail  trade,  Sales  per  employee  (EUR  1(cid:216)000)(cid:216)(˛)

Duty(cid:220)free,  sales  per  "job  supported  by  duty(cid:220)free’  (EUR  1(cid:216)000)

Duty(cid:220)free  sales  as  %  of  GDP

Source:  The  Commission  on  the  basis  of  Eurostat:  Retailing  in  the  European  Economic  Area  1997.
(˛)(cid:217)Excluding  motor  trade.

1993/95

1(cid:216)361,1(cid:217)

4,1(cid:217)

0,3(cid:217)

146

41

0,07

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Table  4:  Turnover  by  product  group

Intra(cid:220)EU  sales

in  EUR  billion

%  of  total

Alcohol  (spirits  and  wine)

Tobacco

Fragrances  and  cosmetics

Miscellaneous

Source:  European  Travel  Research  Foundation(cid:216)(˛).
(˛)(cid:217)See  footnote  13.

1,1

0,9

0,9

1,2

27

22

22

29

ANNEX  II

Data  concerning  employment  provided  by  Member  States

In  January  1999,  Member  States  replied  to  the  Commission’s  request  to  provide  information  on  the  fore(cid:220)
seeable  employment  effects  of  implementing  the  Council’s  decision  to  abolish  intra(cid:220)EU  duty(cid:220)free  sales.
They  did  so  in  different  ways,  under  different  basic  hypotheses.  As  a  result,  the  data  set  is  not  completely
comparable,  although  it  does  give  a  general  picture.

From  this  data,  it  is  evident  that  the  level  of  detail  in  the  information  varies  from  Member  State  to  Member
State.  Some  national  administrations  have  not  been  able  to  provide  substantiated  figures  on  the  possible
employment  effects.

However,  as  an  indicator,  the  information  obtained  from  national  administrations  is  useful  when  assessing
the  employment  impact  of  the  1991  and  1992  Council  decisions.  It  appears  to  corroborate  the  view  that  the
employment  impact  is  not  of  macroeconomic  importance.  The  information  shows  that  there  are  likely  to  be
adjustment  problems,  but  it  should  be  possible  to  counter  these  problems  using  Structural  Funds.

The  figures  provided  by  Member  States  show  that  for  each  of  them,  the  impact  of  the  abolition  of  intra(cid:220)
Community  duty(cid:220)free  sales  is  very  limited.

As  a  consequence  of  the  various  methods  adopted  by  Member  States  to  draw  up  this  data,  it  is  not  possible
to  simply  total  the  figures.  Certain  Member  States  chose  to  take  into  account  indirect  effects  (through
unspecified  extrapolations  for  the  impact  on  tourism  etc.)  while  others  looked  at  the  duty(cid:220)free  sector  in  its
entirety  even  though  it  would  only  be  affected  by  the  loss  of  the  intra(cid:220)Community  part  of  these  sales.  Also,
a  few  Member  States  included  the  net  effect  of  revenue  recycling.  This  latter  aspect  makes  it  even  more
difficult  to  compare  the  potential  overall  impact.

It  should  also  be  noted  that  certain  Member  States  distanced  themselves  from  the  estimates  because  the
analysis  was  carried  out  by  the  duty(cid:220)free  sales  industry  itself.

Finally,  looking  at  the  estimates  as  summarised  below,  it  is  clear  that  most  national  administrations  expect
only  a  small  indirect  impact  on  employment.

Belgium:

No  estimate  provided.  However,  the  Belgian  administration  noted  that  the  abolition  of  duty(cid:220)free  sales  is
likely  to  have  an  impact  on  employment.

(Source:  Ministry  of  Finances)

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Denmark:

1(cid:216)800  jobs  would  be  affected  in  the  air  and  maritime  sectors,  but  the  tax  income  (some  1  billion  Danish
crone)  arising  from  the  abolition  of  the  tax  exemption  currently  applicable  to  these  sales  could  make  it
possible  to  create  2(cid:216)200  jobs.  Denmark  therefore  mentions  the  creation  of  400  jobs  in  the  long  term.

(Source:  Report  of  the  Ministry  of  Taxation  -  December  1997)

Germany:

-(cid:217)For  the  air  sector:  1(cid:216)350  jobs  would  be  directly  affected.

-(cid:217)For  the  maritime  sector:  3(cid:216)000  job  losses  would  be  in  question  from  a  total  of  5(cid:216)700  jobs  in  the  sector.

(Source:  Analysis  based  on  sector  studies  carried  out  on  behalf  of  the  tax(cid:220)free  sale  industry)

Greece:

The  administration’s  overall  analysis  does  not  provide  any  estimate.  However,  they  point  out  that
significant  employment  consequences  are  possible  owing  to  the  rise  in  price  of  transport  as  well  as  a
possible  fall  in  tourism.

(Source:  Study  by  KPMG  Peat  Marwick  for  the  European  Travel  Research  Foundation(cid:216)(˛)  -  November
1997)

Spain:

An  overall  figure  of  22(cid:216)406  job  losses  is  provided.  A  rise  in  the  air  transport  charges,  as  well  as  a  fall  in
tourism  would  result  from  the  abolition  of  these  sales.

(Source:  Ministry  of  Finance)

France:

The  analysis  is  essentially  aimed  at  the  maritime  sector  and  various  production  sectors.

-(cid:217)Northern  Regions  -  areas  of  Calais  and  Brittany:  Maritime  companies:  1(cid:216)500  envisaged  job  losses.

Ports:  600  affected  jobs.  Commercial  sectors:  2(cid:216)500  jobs;

-(cid:217)Region  of  Cognac  (production  and  commercial):  2(cid:216)500  jobs;

-(cid:217)Other  alcoholic  product  production  areas  (production  and  commercial):  290  jobs;

-(cid:217)Perfume  industry  (production  and  commercial):  1(cid:216)100  jobs;

-(cid:217)Other  industries  (production  and  commercial):  900  jobs.

(Source:  Ministry  for  Economic  Affairs,  Finance  and  Industry  -  January  1999)

Ireland:

-(cid:217)For  the  air  sector:  466  jobs  at  risk;

-(cid:217)For  the  maritime  sector:  700  jobs  at  risk;

-(cid:217)Indirect  employment  losses  (production,  etc)  were  not  considered;

-(cid:217)The  budgetary  impact  of  abolition  is  estimated  at  a  revenue  gain  of  between  IEP  30  to  45  million.

(Source:  KPMG  Study,  on  behalf  of  the  Department  of  Finance  -  March  1998)

(˛)(cid:217)See  footnote  13.

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Italy:

Italy  did  not  provide  any  estimate,  but  significant  losses  of  employment  are  mentioned  in  the  air  sector  in
view  of  the  important  turnover  from  intra(cid:220)Community  links  (66(cid:216)%  of  sector  turnover  in  1998).

(Source:  Specific  survey  by  the  Minister  of  Finance)

Luxembourg:

Only  the  air  sector  would  be  concerned:  six  short(cid:220)term  lays(cid:220)off  and  four  to  six  medium  term  lays(cid:220)off  are
possible.

(Source:  Ministry  of  Finance,  based  on  information  collected  from  the  industry)

The  Netherlands:

-(cid:217)For  direct  jobs,  the  Netherlands  considers  that  job  losses  could  be  between  681  (industry  estimate  from
the  Benelux  Duty(cid:220)Free  Association,  July  1997)  and  3(cid:216)258  (industry  estimate  from  ETRF(cid:216)(˛),  October
1998)

-(cid:217)For  indirect  jobs,  job  losses  would  range  between  362  (the  industry  estimate  of  July  1997)  and  681  (the
industry  estimate  of  October  1998).  However,  in  view  of  the  source  of  this  information,  the  national
administration  advises  a  cautious  approach  to  the  estimates.

(Source:  Ministry  of  Finance,  based  on  estimates  from  the  duty(cid:220)free  industry)

Austria:

The  air  sector  would  be  concerned:  250  job  losses  from  a  total  of  500  jobs  in  the  sector.

(Source:  Ministry  of  Finance)

Portugal:

The  turnover  of  intra(cid:220)EU  duty(cid:220)free  sales  represents  almost  70(cid:216)%  of  the  total  turnover.  Taking  a  pessimistic
view,  the  possible  reduction  of  the  activity  in  the  duty(cid:220)free  sector  could  be  around  57(cid:216)%.

(Source:  Ministry  of  Finances,  based  on  the  estimates  of  the  duty(cid:220)free  industry)

Finland:

For  the  air  sector:  100  job  losses  should  be  feared.

For  the  maritime  sector:

-(cid:217)between  2(cid:216)500  and  3(cid:216)000  jobs  would  be  in  question  on  the  Baltic.  However,  these  jobs  will  depend
upon  the  operators’  commercial  strategy  for  connections  via  the  ¯land  Islands  (outside  the  Community
tax  territory),

-(cid:217)for  the  Gulf  of  Bothnia:  300  job  losses  could  be  foreseen.  However,  a  National  State  aid  measure

(based  on  a  public  service  obligation)  is  being  examined,

-(cid:217)200  indirect  jobs  are  also  linked  to  the  abolition  of  these  sales.

(Source:  Ministry  of  Finance)

Sweden:

Sweden’s  reply  is  based  on  a  study  that  it  had  carried  out  in  March  1998  and  the  effects  on  employment
are  focused  on  the  activities  of  ferries  where  job  losses  are  estimated  between  500  and  1(cid:216)200  posts.

(˛)(cid:217)See  footnote  13.

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500  further  jobs  would  also  be  at  risk  but  will  depend  upon  the  operators’  commercial  strategy  for
connections  via  the  ¯land  Islands  (outside  the  Community  tax  territory).

Regarding  indirect  effects,  no  structural  effect  is  mentioned  for  retail  sales,  a  limited  effect  is  mentioned
for  tourism  and  a  marginal  effect  on  the  price  of  lorry  transport.  Price  increases  for  passenger  transport  on
ferries  would  be  about  15(cid:216)%.

(Source:  Report  of  the  Ministry  of  Transport  and  Communications  -  March  1998)

The  United  Kingdom:

Direct  job  losses  in  duty(cid:220)free  outlets  at  airports  and  on  airlines,  ferries  and  Eurotunnel,  would  be  between
1(cid:216)300  and  2(cid:216)700.

Indirect  job  losses  on  ferries,  at  ports  and  in  the  local  economy  would  be  between  780  and  915.

In  addition,  between  580  and  1(cid:216)300  indirect  jobs  would  also  be  lost,  mainly  in  producer  industries
(tobacco,  alcohol  and  fragrances).

(Source:  Study  by  the  Department  of  the  Environment,  Transport  and  the  Regions)

ANNEX  III

Commitments  remaining  to  be  implemented  -  situation  as  of  1  January  1999  for  selected  Community
Structural  Funds  objectives  and  Community  Initiatives (˛)

Current  prices
1999

Commitments  remaining  to  be
implemented
(in  EUR  million)

Structural  Funds

Objective  1

Objective  2

Objectives  3  and  4

Objective  5b

Objective  6

Subtotal

Community  Initiatives

Interreg  II.A

SME

ADAPT

Subtotal

Total

18(cid:216)596

4(cid:216)336

3(cid:216)062

2(cid:216)594

210

28(cid:216)800

1(cid:216)286

418

645

2(cid:216)349

31(cid:216)149

Source:  The  Commission.
(˛)(cid:217)As  obtained  by  deducting  total  implementation  of  commitments  as  of  1  January  1999  from  total  allocations  1994(cid:220)1999

(after  reallocations  made  in  1998).