Time to wave goodbye to duty-free

My father-in-law always came home from his endless foreign travel with his bag of duty-free goodies: a useful means of placating a neglected wife and children.

These purchases are set to become considerably more expensive with the abolition of duty-free from July 1st, 1999, though I seriously doubt if they will join the ranks of endangered species. The inclination of travellers to buy something for the folks back home will not melt away.

And the glut of building across the US of airport "malls" is eloquent testimony to retailer confidence that a traveller stuck in an airport is easily parted with his or her money - dutyfree or no duty-free.

A study of the effects of duty-free abolition published this week suggests that intra-EU travel will be 54 per cent higher in 2010 than in 1995, while travel from the EU to other destinations - not affected by the abolition of duty-free - is expected to be up 88 per cent. Can it seriously be argued that the abolition of duty-free will arrest such social trends? Such growth should certainly be able to compensate airport retailers substantially for some fall-off associated with the abolition of duty-free and suggests that the employment consequences of abolition are not likely to be nearly as dramatic as suggested by the duty-free lobby.

At the same time, city-centre retailers, such as jewellers, whose tourist trade is substantially poached by duty-free outlets, would begin to be able to compete on a fair footing.

Tuesday's decision by EU Finance Ministers on the demise of intra-EU duty-free sales from July 1st, 1999, has been met with the usual apocalyptic warnings from the industry, whose lavishly-funded lobby in Brussels has rivalled in the last year the efforts of even the tobacco lobby.

One alarmist study published recently by the duty-free lobby suggests that between 112,000 and 147,000 jobs would be lost through abolition. Yet such figures never take account of the possibility that other retailers and producers will take on workers as they absorb the freed spending power of those no longer spending on duty-free.

Lobbyists also contend, somewhat dubiously, that such would be the depressing effect on demand that the Exchequer would not benefit through increased tax revenues at all.

The Minister for Finance, Mr McCreevy, has said the fight goes on but even he acknowledges that he does not hold out much hope - and that is more hope than anyone else admits to.

MR McCreevy's message was clear as he passed the buck to the duty-free campaign - any further progress had to be made by the lobbyists persuading public opinion in the abolitionist countries of the virtue of their case. "We've done our bit, now up to you."

In truth, there is no prospect of the 1991 decision being reversed and the Government would do well to face that reality by preparing realistically for the consequences.

That may mean directing structural funding or State aids to threatened regional airports or ferries, a possibility which the Commission on Tuesday acknowledged explicitly in promising a report of what is available.

And, although the EU's Finance Ministers may be portrayed as killjoys for refusing travellers their perks, the subsidising of specific forms of travel and of both alcohol and tobacco, contrary to health policy, does represent a serious anomaly and distortion of the market.

The argument that the aspiration to complete the single market is still a long way off and that we should not, therefore, be too worried about anomalies misses the point - the achievement of this objective is not helped by granting a further extension to the duty-free regime.

There is also a difficulty with the notion that the campaign to defend duty-free is about consumer rights. Monopoly airport retailers with captive markets have been able to charge whatever they liked as long as they kept most prices marginally below supermarket levels. Cheaper it might be, but good value it ain't.

A brief, unscientific survey on Wednesday of Zaventem Airport in Brussels, and our local supermarket chain, Del Haize, makes the point. Black and White Scotch, Gordons gin and Smirnoff vodka were selling at the airport at 1012 per cent less than in town. However, Wild Turkey bourbon was 9 per cent cheaper in the supermarket.

The differences may be greater in countries with higher excise rates, like Ireland, but the process of harmonising such rates at EU level, although currently blocked, is in the long run inevitable. It cannot make economic sense in a single market for goods to be transferred from one country to another on the basis, not of efficiencies of production and, hence, real cost, but of competing tax policies.

The imminent launch of the single currency has already increased pressure on Ireland's generous corporation tax regime and Luxembourg's treatment of bank deposits of non-residents. Excise rate harmonisation is bound to follow.

Duty free will go. But, as evidenced by Aer Rianta's own recent heavy investment in extra shopping facilities at Dublin Airport, the days of airport shopping are not numbered.