EU fund proposed to cushion loss of duty free

Temporary extension to the duty free regime beyond June 31st would not be an efficient way of cushioning the effect of abolition on jobs, a much-awaited European Commission report said yesterday.

Instead, the report on the effect of abolition on jobs, commissioned by EU leaders at the December Vienna summit, advocates the use of reallocated structural and cohesion funds to assist areas most affected and suggests that a new EU fund could also be created to target aid more specifically. The latter would be along the lines of 1992 measures used to retrain customs officers and would also have to paid for out of existing resources.

Member-states may also be able to use some of the increased tax revenues likely to be generated by abolition - some £3540 million (€4450 million) a year in Ireland's case - to help local small firms, the report suggests.

The report now goes to finance ministers where another attempt is likely to be made by what is now a substantial majority of member-states to persuade the Commission to put down a proposal for an extension of the regime. An unanimous vote would then be required to back it.

But, following yesterday's findings and the continued insistence by Denmark that it will not change its position, few observers are giving extension much chance.

The Commissioner for the Internal Market, Mr Mario Monti, whose officials produced the report, said yesterday that it had been agreed unanimously by the Commission and insisted that "losses in employment may be there but they are more limited in degree and more specifically localised than sometimes predicted".

But the duty free sector, he said, had since the 1991 decision for abolition already had the longest adjustment period of any in the EU. "Evidence is not there that they have made the preparations," he said. He warned that failure to go ahead now would damage the credibility of other EU commitments and would certainly result in legal action in the European Court of Justice from sectors favouring abolition.

Mr Monti responded to journalists' suggestions that the Commission should bow to the wishes of member-states by arguing that one of the EU's strengths was precisely the independent role ascribed to the Commission.

The Commission's report acknowledges figures from member-states which put the number of jobs directly at risk at some 53,000 throughout the Union, but argues that such figures do not give an accurate view of the net jobs picture. Evidence from the expansion of US airport malls suggests that demand for goods in airport and ferry shops will not be hit as hard as campaigners fear, the Commission says, because of the effect of a "captive" clientele. And the report argues that such sales are in any case not price sensitive, as evidenced by the many surveys which show lower prices in supermarkets.

The Commission insists that, although there may be a loss of employment in duty free outlets, new jobs are likely to be created throughout the retail sector and that the use by the state of its increased tax revenues of around £800 million to reduce non-wage labour costs to industry could produce as many as 20,000 new jobs.

The report includes Irish Government projections of some 1,166 jobs directly at risk but points out that only Denmark has submitted figures to it which quantify the positive effects of abolition on employment. The Danes predict a net rise of 400 in employment in the long term.

The Commission yesterday also adopted a proposal for a directive allowing member-states to designate specific labour-intensive services such as car repairs or domestic work for reduced VAT contributions. Mr Monti said the measure was far more important than duty free, and if approved by member-states would make a significant contribution to job creation.