A part of Europe to remain forever duty-free


As the battle to retain duty-free sales within the EU in the face of next summer's deadline for their abolition intensifies, there is one tiny corner of Europe which is calmly confident that it will remain a tax-free zone.

This is Aland, a Baltic Sea archipelago between Sweden and Finland, which already has a flourishing ferry trade of duty-free shoppers, and is building a new terminal to cater for increased traffic. Aland, a smattering of 6,500 small islands and skerries, about 65 of which are inhabited, is part of Finnish territory, and so belongs to the EU. But from next July, when duty free sales are due to be abolished, Aland will remain a "third country", outside the EU's harmonisation directive for indirect taxation. This means dutyfree goods will be available on ferry journeys between both Aland and Sweden and Aland and Finland.

The aim of this exemption - negotiated by Finland for Aland when it joined the EU in 1995 - was to secure the future livelihood of the archipelago, which is heavily dependent on its tourist and ferry industries. Some 2,000 of Aland's 25,000 inhabitants work for ferry companies, and about 60 per cent of the companies' income is made from duty-free sales of alcohol, cigarettes and perfume.

More than one million tourists, mainly from Sweden and Finland, visit Aland every year. They dock at Mariehamn, the capital of Fasta Aland (the main island), alongside the Pommern, a beautiful fourmasted cargo vessel which was forced to take refuge in Aland at the outbreak of the second World War and has remained there since.

Only about 300,000 of these visitors stay more than half a day on the islands, attracted by their beautiful scenery and gentle pace of life. The vast majority don't even bother to get off the huge ferries, some of which dock for only 15 minutes at Mariehamn before sailing on to their destination. Aland's main port is a seven-hour cruise from Turku in west Finland and a five-hour cruise from Stockholm. The two main ferry companies operating in the area, Viking Line and Silja Line, are planning to re-route direct Stockholm-Helsinki sailings via Aland, bringing four more ships a day to the archipelago.

With fewer than eight months to go for the removal of intra-EU duty free sales, Ireland is one of the member-states most opposed to the move, which campaigners say will lead to up to 10,000 Irish job losses. However, any reversal of the abolition would require the unanimous support of the 15 EU finance ministers who opted for the measure in 1991. Earlier this year, Transport Commissioner Mr Neil Kinnock said he doubted there would be a reversal of the decision.

While calls for at least an extension of the duty free expiry date are expected to grow louder over over the coming months, ferry companies on Aland are gearing up for competition. But there are worries among some in the local administration that the change would cause congestion at Aland's two main ports. The fear is that if ferry operators which do not currently dock at Aland see their income from duty-free sales disappear overnight, they may begin offering services in the area in order to maintain their revenue, says Peter Lindback, director of the Aland administration.

"Many people think the abolition of duty-free sales within the EU will be bonanza for Aland. We don't have the same opinion at a political level," he says. "There is a risk that they will come like flies to Aland from all over the Baltic Sea and destroy the well-functioning traffic systems. There are so many risks when you make such a radical change to a system, and we are a bit afraid of this."

Mr Lindback said another fear was that large ferry companies moving into the market could undercut local companies. Senior executives at Viking Line, an Aland-based ferry company which has seven ships, acknowledge that increased competition could threaten its business.

Kent Nystrom, the company's deputy managing director, says: "There are ferry routes between England and France, Ireland and England, Sweden and Denmark and there will be a lot of ferries that will be idle next year and it is a possibility that some of them might try to move to the Baltic area and the traffic is open to anybody. Once you meet the safety regulations, it's not restricted in other respects."

This contrasts with other market restrictions which Aland has maintained to ensure the future viability of its economy. Restrictions on the rights of non-domiciled people to purchase land, or provide services on Aland are designed not only to protect local industry and employment, but also to make it difficult for the archipelago to become a tax haven, Mr Lindback says. Though subject to Finnish sovereignty, the archipelago, which was part of Sweden until the 19th century, has had its autonomous, demilitarised and neutral status recognised by international law. The islanders have their own 30seat provincial parliament with legislative powers in areas such as education, local taxes and the police service (subject to a right of veto by the Finnish president), their own government and their own flag. They elect one representative to the Finnish parliament.

The encroachment of the EU has removed some of the splendid isolation which Alanders have so far enjoyed. Prices in restaurants and shops on the islands are currently in both Swedish kronor and Finnish markka. From next January, when the euro is introduced, Alanders will have another change to get used to - triple pricing.