Court casts a beady eye on Europe's tax havens: A French Alpine region gets duty-free cars, and Vatican workers two bottles of spirit three times a week. Andrew Marshall examines customs curios left by centuries of European border battles

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The Independent Online
THE good times may be over for those strange islands in Europe, Andorra, San Marino and Monaco. Gibraltar is under siege. The duty-free arrangements of the Vatican are being scrutinised. The beady eye of the European Community has been attracted by the customs systems of these tiny enclaves, and its Court of Auditors has put them under the microscope.

The Court has produced a daunting work: 'The customs territory of the Community and related trading arrangements'. Delve deeper into this report, and a strange world comes into focus. It reveals a bewildering variety of border oddities in the EC, the result of centuries of wars, colonisation and the geography of chance.

Andorra, San Marino and Monaco are sovereign states, tucked within the borders of larger ones. With tiny populations and economies dependent on tourism and tax shelters, they have not yet come within the embrace of the EC, which leads to some odd results where customs and tax are concerned.

But beyond these curios, there are more. The German territory of Busingen is surrounded by Switzerland; it is part of the EC, but not of its customs territory. Likewise the Italian commune of Campione D'Italia on the shore of Lake Lugano.

There are two chunks of Austria that to all intents and purposes have ended up in Germany, Jungholz and Mittelberg, both almost surrounded by Bavaria. They are regarded as part of the EC's customs territory because of the Customs Union treaty of 1868, signed when Germany did not exist, let alone the European Community, and Austria was still Austria-Hungary.

Gex and Haute-Savoie, though part of France, are 'free zones' because of the treaties of Vienna (1815) and Turin (1816). So there is a separate border between them and the rest of France, and normal customs rules do not apply in them. This was originally to ensure the good citizens of Geneva could buy food, but as the report notes, has become a way of guaranteeing the locals duty-free cars. Gorizia, another 'free zone', was set up after the Second World War when the Italian border with Yugoslavia shifted. The Italian alpine valley of Livigno is considered, for customs purposes, as a separate country, since it is almost completely isolated from the rest of the country. The Val D'Aosta is in a similiar situation. The Alto Adige and Trentino in Italy have a free trade deal with the Austrian Tyrol and Vorarlberg. Melilla and Ceuta, the two Spanish enclaves in North Africa, are part of Spain and the EC but not the customs territory.

The Vatican is another sovereign state with its own generous duty-free arrangements - two bottles of spirits three times a week for those who work there. Mount Athos in Greece is administratively autonomous but not sovereign, and since 1926 has had the status of a 'theocratic republic' with some tax privileges and tax exemptions.

Then there are the islands. Neither the Isle of Man nor the Channel Islands is part of the United Kingdom: the first is an independent territory, the second a dependent territory. Neither is part of the EC, though both are part of its customs territory. The Faroe Islands and Greenland are autonomous Danish regions, but not part of the EC or its customs territory. Heligoland, a German blip in the North Sea, is part of the Community but not of the customs territory. The French colonies and dependencies are even more confusing. The French Overseas Departments - Guadeloupe, Martinique, Reunion and French Guiana - are part of the EC and its customs territory; the Territorial Collectivities - Mayotte and St Pierre et Miquelon - and the Overseas Territories - New Caledonia, Wallis and Futuna Islands, French Polynesia and French Southern and Antarctic Territories - are neither. Nor are the British territories and dependencies, like the Falklands and the Caymans. But Gibraltar is part of the EC, not part of the customs territory and treated like a different country. The Court notes grimly that its situation is 'anomalous'.

The existence of these bumps in the neat single market stirs deep emotions in the Court of Auditors, like a gardener confronted with molehills on the lawn. It concludes there are problems, and hints it wants to wield the fiscal roller. But it shies away from recommending any of these arrangements should end, which could also affect Britain's butter trade with New Zealand, and France's trade with the Maghreb. That could create as big a row as the Great Banana War between Germany and the EC, based on similiar legal arguments, rapidly turning the molehills into mountains.

But the Court does want to see all these arrangements looked at more closely, which will raise hackles in every duty-free haven in the EC. As the Commission sternly notes in its reply to the report, 'the Monaco coefficient should be reviewed'. Goodness only knows what that could mean.

(Photographs and map omitted)