Duty-free dies and chaos takes its place

WITH duty-free due to be abolished in the European Union from midnight on Wednesday, ferry companies face a difficult week as customs officials work down to the wire to hammer out details of the new regime.

"It's a total nonsense," said Geoffrey Ede, managing director of Hoverspeed UK.

"We are still thrashing this out with the authorities. I don't think any companies in the world have been treated as badly as we have."

The original decision to scrap duty free in the European Union was made in 1991, with a date set for January 1993. But the duty-free industry was granted an extra six and a half years to adjust.

However, it was only three weeks ago that all attempts to keep European duty-free alive were finally ditched. Under the new regime, ferry operators will shut down their duty-free tills during the "British" sector of crossings and open them again in French territorial waters, where tobacco and alcohol prices are as much as 40 per cent lower.

Experts say that UK attempts to simplify the new regime have not been heeded in France.

"Although they have been simplified by the UK, they are not as suitable as one might hope and not totally reflected by other members states," said Michael Barlow, of Khayyam Associates, a consultant to the duty-free industry.

For example, the UK says all food and soft drinks sold on board will be free of value added tax, but the French are insisting only food sold in restaurants is exempt.

The duty-free industry in Europe is estimated to be worth pounds 4.3bn, and there have been claims that up to 30,000 jobs could be affected in Britain by its abolition.

Although this figure may be exaggerated, a cull has already begun in some sectors, with Hoverspeed set to lay off 120 workers next week when the company closes its onshore UK duty-free stores.

Ferry company P&0 was putting a brave face on the issue this week but City analysts say it could lose up to pounds 10m in profits. Wyn Ellis, an analyst with Commerzbank, is predicting P&O's operating profit will be pounds 62m this year compared with pounds 81m in 1998.

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