Pressure grows for U-turn on duty-free

THE consensus that duty-free shopping in Europe should be ended next year showed signs of cracking yesterday as a study showed that abandoning the practice would result in chaos.

Britain, which holds the presidency of the European Union, has at the initiative of John Prescott, the Deputy Prime Minister, formally asked other EU governments to consider the implications for jobs in the transport sector.

And in Germany Gerhard Schroder, the man chosen by the Social Democrat Party to challenge Chancellor Helmut Kohl in September, backed calls for a review.

The duty-free business is worth pounds 5bn a year across Europe and as many as 140,000 jobs could be lost. EU duty-free sales are said to account for more than half world-wide duty-free turnover of nearly pounds 10bn.

According to a study by the Duty Free Confederation customers could be put in the "farcical" situation of paying different prices during one ferry journey.

A ban on duty-free sales from 1 July 1999 has been agreed by the EU governments - but the pressure is mounting on the European Commission to reconsider the impact of abolishing the perk on boat and plane journeys.

Under EU rules the excise duty on alcohol and tobacco is charged at the rate which applies in the country where the purchase is made. But after the abolition of duty-free, things become more complicated.

"In one of the simplest cases - let's say Dover to Calais - you will pay UK excise rates up until the half-way mark and then pay French rates after that," said Vic Moorcroft, P&O group indirect tax manager. "When you get into international waters no law applies that requires operators to charge any duty."

The Portsmouth-Bilbao ferry takes 36 hours and spends just under an hour in British waters, 15 minutes in French waters, 15-20 minutes in Spanish waters and the rest in international waters. "It could all come down to where you are in the queue," Mr Moorcroft said. "It's a mess."

One solution mooted would be a similar system to VAT where the rate charged is that in the country of departure. But Mr Moorcroft said: "We already know what that is costing the Exchequer by people rushing over to French hypermarkets. This would exacerbate it."

The duty-free industry wants the commission to organise a study of the social and economic effects of abolition.

In a letter to the German finance minister Mr Schroder, whose Lower Saxony constituency includes a number of Baltic ferry ports, warns of potential job losses and says the matter should be discussed at the next meeting of EU finance ministers.

The German transport minister Matthias Wissmann has said that he will back an EU- wide study into the effects abolition of duty-free would have.

British officials fuelled speculation by saying the Government was "open" to a study on the consequences of reform.

From Dover to Palma, how duty-free compares

ALCOHOL

Gordon's gin 1 litre

UK high street: pounds 15.49

Heathrow: pounds 7.95

Dover - Calais, P&O Stena Line: pounds 9.99

Britannia Airways: pounds 8.99

Palma Airport Majorca: 1,900 pesetas (pounds 7.60)

CIGARETTES

200 Silk Cut

UK high street: pounds 32.30

Heathrow: pounds 14.50

Dover - Calais, P&O Stena Line: pounds 15.50

Britannia Airways: pounds 13.99

Palma Airport Majorca: 3,600 pesetas (pounds 14.40)

WATCHES

Swatch "original classic"

UK high street: pounds 25

Heathrow: pounds 21.27

Dover - Calais, P&O Stena Line: pounds 21.20

Palma Airport Majorca: 5,500 pesetas (pounds 22)

PERFUME

Chanel No 5,

eau de toilette spray, 50ml

UK high street: pounds 36.50

Heathrow: pounds 27.90

Britannia Airways: pounds 27.99

Palma Airport Majorca: 6,700 pesetas (pounds 26.80)