ECJ ruling upholds cross-border shopping status quo

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The European Court of Justice yesterday (23 November) ruled that EU consumers can only buy alcohol and cigarettes from other EU countries in person if they are to take advantage of lower duty rates. Joe Ayling reports on how the decision will be welcomed both in the corridors of power and in the UK alcohol retail market.

There would have been a cheer in Downing Street yesterday morning as the European Court of Justice (ECJ) ruled that consumers will not be able to buy alcohol and cigarettes online from other EU countries with lower duties without transporting the goods in person.

Member states with relatively high excise duties, such as the UK, were naturally fearful of a ruling which would have allowed consumers to take advantage of lower prices without actually travelling, as it would have resulted in a drop in tax revenues - from both alcohol and tobacco - that would have to be made up elsewhere.

In the UK, such a ruling would have dealt a further blow to the wines and spirits retail trade which already effectively loses a huge amount of business every year to cross-Channel shopping. "The Treasury will be delighted, and it is good news for the UK trade," says Jeremy Beadles, chief executive of the UK's Wine and Spirits Association. "This case was anything but a foregone conclusion. It highlights that if we want a free market economy it has to be on a level playing-field."

The law had been challenged in the Netherlands in October 2005 by a Dutch wine enthusiast called Bob Joustra, who had objected to having to pay excise duty in both France and the Netherlands on wine bought in France and transported back to Holland via a third party freight company. Joustra had bought the wine for his own use and for other members of a group calling themelves the 'Cercle des Amis du Vin'.

The case went all the way to the European Court of Justice which has now effectively preserved the status quo, namely that products bought must be for individual consumption, and purchasers must bring back the goods personally in order for duty not to be payable in the destination country. The court said: "Only products acquired and transported personally by private individuals are exempt from excise duty in the member state of importation."

The case had fundamental implications for the Single Market. Allowing individuals to buy products duty-paid from other countries, particularly online, without travelling and without having to pay duties in the destination market, could have resulted in a further explosion in cross-border shopping, along the lines of the surge in the 'booze cruise' trade following the establishment of the Single Market in 1992.

So it would not only have been the UK off-trade retail market which would have suffered. The massive retail market established in France, particularly in Calais, catering for cross-border shoppers, would have been dramatically affected, as consumers would not have to cross the Channel to take advantage of lower duties. Also, the ferry operators, which generate a huge amount of passenger volume and retail income from the cross-border trade, must be breathing a collective sigh of relief.

This would have been all the more damaging given that the Calais trade is already said to be in decline, according to Nico Thiriot, former Sainsbury's project manager France. The market, Thiriot says, has been hit by the end of duty free in 1999, greater price competition among UK retailers and the take-off of low-cost airlines.

Nevertheless, the Calais market remains huge. "When the European market opened suddenly people discovered they could buy bottles cheaply, but nobody in Calais was ready," Thiriot says. "There were just two hypermarkets, whereas now there are three hypermarkets, 12 supermarkets and 50 cash and carries here."

Effectively, today's ruling ensures that Calais will remain the prime destination for cross-border shoppers, who may have otherwise been tempted to order online from other countries in the EU such as Latvia, while also preventing a further undermining of the UK retail market, not to mention the domestic trade in other high-tax countries.

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