How to cope with cross-border alcohol trade?June 12, 2018
Estonia is facing a similar situation where Finland has been the last 15 years when a large number of its population (but still a minority) is getting its alcohol from a neighbouring country. For Finland, the source of cheap booze has been Estonia and for Estonia, it is now Latvia.
While cross-border trade is a normal feature in European Union and part of an important value, free movement of goods, it causes unwanted problems and weakens States ability to regulate commodities like alcohol. Alcohol is no ordinary commodity and as such governments regulate it in order to decrease its consumption among its population. Lower tax rates and price levels in a neighbouring country causes a situation of distortion when people buy their alcohol from abroad, paying the excise tax there but by bringing alcohol problems, including health costs, back home.
An alternative, keeping alcohol prices lower than normal considering national affordability, would be problematic for the public health as the price is one of the main aspects that decide the overall alcohol consumption rates of the population.
Finland and Sweden
Estonia can learn a lot by comparing how Sweden and Finland reacted to cross-border trade challenges at the beginning of 2000´s. When Finland faced a big problem with Estonia joining the EU, Sweden experienced similar challenge from close neighbours like Denmark and Germany. What did Sweden do? Nothing! And Finland? Started to play a game, which rules were written by the alcohol industry: „We have to reduce our alcohol taxes or cross-border trade will explode and will become a huge problem for our national industries.“ Alcohol taxes were reduced by 33% on average, even though the impact of that decision was estimated very precisely. As a result: alcohol-related deaths increased by several hundred cases and the overall per capita consumption increased by one litre in one year.
There is always a moral dimension in politics, Finland chose to support economic interests before public health. Sweden did the opposite.
Lessons and challenges
Raising alcohol taxes is an important alcohol policy measure to reduce alcohol consumption and tackle underage drinking and alcohol abuse. It is especially important to use taxes to avoid the situation that alcohol becomes more affordable as peoples income is growing. For a country like Estonia, there are a couple of main issues that have to be considered keeping the effectiveness of that policy tool intact. First, the illegal market. Estonia has struggled with this for years and even now the illegal market of spirits has more than 20% of the whole spirits market.
As a result, the most effective tax rise should be gradual and not too steep in order to avoid people turning to alternative markets.
Secondly, while cross-border trade is legal and normal part of the EU, we should do our best not to overemphasise the price difference with neighbouring countries. Too steep rises will turn people to cheaper markets and as we have seen in Estonia, part of that comes as a protest against the government that in their view is making unreasonable decisions.
That protest has been explained as something that is caused by lack of communication. Some people seem to be feeling that they are talked down to. While obviously there is an abundance of explanation and reasoning for excise increases, most people are just not making the effort to hear or read, it could be still an opportunity for policymakers to search for direct contact with the organizers of these protest activities. It is clear that big part of that protest is caused by the opposition against the government or the health minister personally. A big part of it is organized by the economic operators who oppose to alcohol policies due to their financial interests and for these groups that dialogue wouldn´t solve anything. But there seem to be also those who for some reason don´t believe that government could raise taxes for public health reasons (and not only to fill the state budget) and here an extra effort could be useful. It is usual that with alcohol policy, the main dialogue takes place with alcohol industry who present themselves as the main partner in this. As history has shown, a dialogue with those who have vested interests works counter to the goals of alcohol policy and attempts to move the question from public health and reduction of alcohol consumption. The dialogue should be moved towards the public whose support and understanding is important.
Media plays an important role obviously as well. Cross-border trade and its magnitude is clearly a newsworthy topic but from a point, a very extensive coverage with special live broadcasts from one of the border shops and protest action on February 24th (Estonian Independence day) etc, becomes more like advertising than newsmaking. There is clearly a fine line between unbiased journalism and being a tool in the hands of financial interests (or better, partnering with) who oppose higher alcohol taxes.
Don´t lose the big picture
It is also important to see and cover all aspects of the situation. According to a recent survey, 10% of Estonians have travelled to Latvia with a sole purpose of buying alcohol. And almost 40% have bought alcohol while being there. That means that majority of Estonians don´t have anything to do with cross-border trade and for them, the increased taxes act as effectively as studies have shown that increasing taxes would do. So we should consider the positive effect that increased prices also have on our overall public health
Alcohol-related harms in Finland comes mainly from alcohol bought from Finland. The economic cost is up to 2 billion euro a year. Alcohol is the main single cause for shorter working years and if it could be possible to increase the average work-life by 2 years it would save up to 5 billion euros for Finland. Estimated costs that are related to booze-rally are completely different. If we continue focusing only on the lost money due to cross-border trade, we are forgetting that biggest costs and options for saving money are elsewhere, not in booze-rally.
Alcohol industry speaks about their positive influence on employment and presents cross-border trade as an obstacle. The industry´s solution is almost always the reduction of excise duties to decrease the price difference. Public support for that is reached by telling how many millions are lost due to the fact that Finns are leaving their money to Estonia. From a public health perspective, if we would implement their solutions, the influence on employment would definitely be big. But in different areas compared to what they are saying. The biggest growth should be among police, social workers, doctors and nurses, teachers and youth workers.
Alcohol industry wants to show that all cross-border trade is caused by recent tax increases. Which it obviously is not. As we have a clear income difference between Estonia and Latvia, there has always been a cross-border trade that mainly affects Southern-Estonia.
Economic operators have masterfully managed to frame the whole alcohol discussion at the moment with alcohol trade at the Estonian-Latvian border. Main problems are actually still elsewhere, with families where one or several members have serious alcohol problems, on the roads where an unforgiven number of drivers are drunk while driving, at the hospitals, courts and prisons etc.
If you want to be an influence, you have to participate in the public discussion. Otherwise, it will be taken over by the industry representatives. If we look at the subject from the public health point of view, travellers alcohol import figures and arguments can be put into a more correct perspective. What looks huge through the industry´s arguments, is actually much smaller when viewed through bigger picture.
Close cooperation will be important
As questions concerning alcohol import influence both Finland and Estonia, it is important to continue with a close cooperation. Ministries of finance can exchange information and experiences and inform each other about possible tax changes. Cooperation between ministries of health and social affairs is obviously most important.
Estonia´s action regarding booze-rally from Latvia shows an example where Finland can learn from. In addition to counting the alcohol litres, Estonians also follow from which country the cars come from. That helps to understand the overall situation of the cross-border trade.
As Estonia has increased their excise taxes, the import of alcohol from Estonia to Finland has decreased significantly. Finland strengthened the functions of the custom which has also helped to keep the booze-rally under control.
When we look at the big picture the booze-rally hasn´t exploded into our hands. And it is important to remember that 55% of Finnish travellers didn´t bring any alcohol back home in 2017.
Alcohol policy cannot be something that we consider to be DONE at some point. Sociological situation changes, also political and economic conditions change in time and alcohol policy has to react and evolve accordingly. No level of alcohol-related harm can be considered as acceptable. Estonia seems to be entering a new situation where we have to keep the focus on reducing alcohol harm.
Tuomas Tenkanen, EHYT
Lauri Beekmann, NordAN