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Bulgaria's Duty-Free Shops

Date: 27.08.2006

Bulgaria is under pressure from the European Union to close its duty-free shops along the borders with some of its neighbouring countries.

The Finance Ministry has received a letter from Robert Verrue, the director general of the European Commission’s Taxation and Customs Union Directorate-General, insisting that the country ban duty-free trade along the borders with Turkey and Serbia.

The letter lists seven duty-free outlets at the high-traffic Kalotina and Kapitan Andreevo border checkpoints. The Finance Ministry is yet to come up with an official position.

The EU is keen to see the end of duty-free trade especially along the border with Turkey which is a major gateway for counterfeit excisable goods.

The hands of the Bulgarian authorities however, are tied by the long-term contracts with the owners of some duty free shops on the country’s southern border. The contracts include clauses providing for large-scale compensation if the outlets are closed prematurely.

The aim of this outside pressure is to reroute the flow of goods to neighbouring countries, said Radostin Genov, chairperson of the association of duty-free operators. Domestic duty-free trade amounts to 130 million euro annually, said Genov.

At this stage it is not yet clear whether any change of the Finance Ministry’s policy will come into effect, because the European Commission is in quite an uncertain position.

Despite the letter by Verrue, according to the current EU regulations, duty-free trade is not allowed only on borders between member states. While Bulgaria will be joining the EU, Turkey and Serbia are not yet members.

The letter sent by Verrue said that it was not EU practice to allow the operations of such shops along its entry borders. At the same time, however, there is no directive that bans their existence, said Deputy Finance Minister Georgi Kadiev.

During talks in the parliamentary committee on budget and finance, an effort is to be made to interpret whether the fact that it was not EU practice to allow such operations actually means a requirement that there be no duty-free shops. But even if these outlets are closed, there are others a few metres away - for example, in Turkey.

The situation will certainly favour the Turkish shops, because all trade will go to them. At the same time, people who smuggle cigarettes and other goods will keep doing so but will buy them from another duty-free shop.

The problem is very complicated, and if duty-free shops are closed, this will not automatically lead to discontinuation of smuggling operations.

Budget losses because of smuggling can be calculated only approximately, just like the share of the grey economy, for example.

Figures indicate that cigarette smuggling in the UK amounts to 25 per cent. If it is within the same limits in Bulgaria - between 15 and 25 per cent, losses may be considered hundreds of millions of leva, Kadiev said.

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