Duty-free sales within EU slated to end

NEW YORK -- Duty-free purchases for travelers within the 15-country European Union will end July 30, when the 1991 European Commission ruling that eliminated the sales finally takes effect.

The demise of the $7 billion business, which covers sales at airports and ferry terminals as a well as on airplanes and ferries traveling within the E.U., will have little impact on American travelers because the ruling applies only to intra-European travel.

Travelers from non-E.U. countries such as the U.S. still can make duty-free purchases of popular items such as cigarettes, alcohol and perfume in the E.U. as long as they are on their way to or from a destination outside the union.

For example, a traveler from Paris to New York can show his ticket and buy duty-free liquor at the airport before departure, but from Frankfurt, Germany, to Paris, the liquor's airport price will include all applicable VAT and excise taxes.

The E.U. countries are Austria, Belgium, Denmark, Finland, France, Germany, Great Britain, Greece, Holland, Ireland, Sweden, Italy, Luxembourg, Portugal and Spain. The end of duty-free shopping is expected to have a dramatic impact on regional airports, airlines and ferries that rely heavily on these sales to subsidize operations.

According to a 1996 report published by the Campaign to Save Duty-Free in London, airports accounted for 49% of all duty-free sales, followed by ferries with 37% and airlines with 14%.

A spokeswoman for British Airways in London said that many regional airports likely will increase their landing fees to airlines by as much as 15%. "This increase could potentially be passed on to travelers, but we're waiting to see what the airports do before we make any decisions," she said.

The British Airport Authority, which runs Heathrow, Gatwick and Stansted airports outside London as well as Glasgow and Edinburgh airports in Scotland, received permission from the Civil Aviation Authority to increase its landing fees to airlines by $88.5 million starting this July, an authority spokeswoman said.

"This could result in additional 70 pence ($1.13) per ticket charge, if that's how the airlines deal with it," she said. The authority expects the elimination of duty-free sales will cost it $30 million to $40 million in the first 12 months, the spokeswoman said.

Like many other airports in Europe, however, the British Airport Authority plans to diversify its shopping outlets with specialty shops to make them a "choice stop for passengers" even without duty-free items.

One innovative marketing approach was taken by Amsterdam's Schipol Airport and its shopkeepers, which announced they will pay the value-added tax on all items except alcohol and tobacco bought by passengers traveling within the E.U. The decision will cost Schipol as much as $40 million a year, according to an airport spokeswoman, who said alcohol and tobacco account for 13% of all airport purchases.

Ferry lines might have fewer options. A spokeswoman for London-based P&O Stena ferry line, which operates 35 roundtrips daily across the English Channel between between Dover, England, and Calais, France, said duty-free sales accounted for one-third of the company's revenue.

The firm raised its prices this year by 25% in preparation for the end of duty-free shopping, the spokeswoman said, but prices were still below 1994, when the Eurotunnel between France and England began giving cross-Channel ferries stiff competition.

Cross-channel ferries as well as ferries that travel in waters off of Scandinavia and Germany are often referred to as "booze cruises" because of the business they do in alcohol sales. Tax-free liquor and cigarettes still can be purchased aboard such cruises and on airplanes but only for on-board consumption.

Meanwhile, two Scandinavian ferry lines, DFDS Seaways of Copenhagen, Denmark, and Silja Line of Helsinki, Finland, changed their routes to include stops in non-E.U. ports such as Oslo, Norway, and Tallinn, Estonia, in order to continue their duty-free sales on most cruises.

The decision to end duty-free sales within the E.U. was made "because such sales were an anomaly in what is supposed to be a single market," said a spokesman for the European Commission here. The eight-year delay in scrapping duty-free sales was designed to allow E.U. countries time to prepare for the economic impact of the ban.

"These [duty-free] sales created unfair competition for all of the nonduty-free stores. It is expected that jobs and revenue lost with duty-free's end will be made up for in the taxes gained and the stimulation of the normal retail sector," he said.

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