The European Union and Aldeasa

Observations
Government institutions are specific but nonmarket analysis and
strategy frameworks are general
Nonmarket challenges are often more prevalent the larger is
government or when government institutions are evolving.
governments in many countries play a larger role in economic activity
(Denmark, France, Sweden have taxes/GDP > 50%) (US is 31.1%, Spain
37.5%, UK 40.4%) (Differences with some new EU members are greater
many have low taxes.)
tax harmonization in implementing the SEA is the issue today
in some countries institutions are are less well developednext session

Objectives for this session

Develop an integrated strategy: Aldeasa
integrated market and nonmarket strategy

Implement based on decision-making within the institutions of the

European Union

Inside the Black Box of Government

Interests

GOVERNMENT

Policy

For market strategy, market structure is important.

For nonmarket strategy, institutional structure
is important.

The European Union

www.europa.eu.int

The European Union

Principal EU institutions*
Approves, can censure
Consults, advises,
amends, vetoes

Appoints
Commission
(20 commissioners)
DG XXI
Serves EU,
integrationist
Main EU executive body
(bureaucracy)
Votes by majority rule;
seeks consensus
Initiates legislation

Council of Ministers
(15 member states)
ECOFIN

Parliament
(626 MEPs)

Executive and
legislative
functions

Directly elected by voters

in member states.

Weighted voting;
different rules for
different decisions,
unanimity for some
decisions

Cannot initiate legislation,

but can amend and veto
under co-decision
procedure

DGs have well-specified

jurisdictions
Implements EU Treaties
* European Court of Justice not included in figure.

Political groups (parties)

Committees are weak but

will become more
important

EU Institutions, Constituencies, and Access

Institution

Constituency

Access

Commission

EU-wide
(integrationist)

DGs, Commissioners, staff.

Council

Member states

Member state govts,

COREPER, working groups

European
Parliament

Citizens

Political parties,
committees, MEPs and
MEP staff

Economic and
Interests
Social Committee
(advisory)

Representatives,
associations

Aldeasa Nonmarket Strategy in Spain

Negotiated a new concession contract with AENA

Extended until the end of 2006.
Aldeasas duty free stores to be converted into
duty-paid or dual-tax stores with exclusivity status.
The annual fee on sales by product was replaced by
a fee on the total gross margin (reduces risk).
New concession contract negotiated privately (no
open bidding as required by law)
The new concession was challenged in courts by a
local retailer for its discriminatory provisions
favoring Aldeasa. The lawsuit failed.

Aldeasas Market Strategy (Pre-Abolition)

Aldeasa increased its domestic and international diversification

efforts.

Developed specialized shops: Bally, Virgin, Tie Rack,

Ermenegildo Zegna, Lacoste or The Body Shop (semifranchises).

Opened duty-paid shops at airports (exploiting captive customer

base).

Opened its first duty-paid stores in cities. (failed)

Intra-EU duty-free sales estimated to account for approximately

50% of total sales in 1998 (65% in 1994)

Product mix shifted away from tobacco and alcohol

Overview of Nonmarket Analysis and Strategy

The themes are travel and its impact on employment.

Objective: postponement (reversal is unlikely)
Analysis of interests
Opponents have widely dispersed costs and are hard to organize
except for retailers associations
Proponents have concentrated benefits and are organized

Institutional analysis
Decision maker is the Council (ECOFIN)the member states
Rule is unanimityhave to enlist every member state
Tailor and implement nonmarket strategy country by country

DG XXI is opposed, so work through other DGsTransport, Tourism

Parliament is most politically responsive, but it has no authority here.

Nonmarket strategy
Need a pan-EU coalition
Representation strategy for Parliament, member states, other DGs
Informational strategytechnical (predictions about infrastructure
effects) and political (impact on constituents)
Conduct studies

Aldeasa/Coalitions EU Nonmarket Strategy

The themes are travel and the threat to employment.

European Travel Research Foundation (ETRF) (pan-EU
coalition): duty-free retailers, airport authorities, carriers,
suppliers, tourism, destinations, and trade associations.
The coalition hired a group of top EU lobbyists in Brussels
(including two ex-DG heads).
Lobbying led the EP in 1996 to raise questions on abolition.
September 1997 ETRF organized a highly publicized conference
in Brussels under the theme Duty Free in Europe.
Massive PR campaign: Save Duty Free
Grassroots campaign: letters, petitions, email from travelers
On December 1st, 1998 at the ECOFIN Council, France (with
Germany, Greece and Ireland) argued for a postponement
Mario Monti (EU Commissioner DG XXI) was unshaken

ETRF Information Strategy: Lobbying

Link between reduced travel and greater unemployment

Plausible ?
Dramatic fall in passengers traveling
Truthful ?
Likely closure of marginal ferry routes
There will be significant job losses, extending beyond the
transport sector (total loss between 112,000 and 147,000)
UK will lose 128 million sales of scotch, gin, vodka and 1,000 jobs

Significant employment losses in particular regions

Revenue loss to airports will slow expansion
Development of regional airports will be severely affected
Falling investment in the provision of sea transport services
Reduction in infrastructure investment, which may lead to
capacity and service problems
The price of air travel will increase due to higher airport and
landing fees, especially for charter and low-cost airlines.
Charter traffic will switch to non-EU destinations

Targeting EU Institutions

Council
Work through member state governments and COREPER
Emphasize threat to employment from tourism
Election issue (Helmut Kohl and Gerhard Schroeder)

Commission (less politically responsive)

DG XXI (Monti) is adamantly opposed
Work through other DGs: Transport, Tourism, Industry
Emphasize threat to tourism, employment, business
Likes to achieve consensuson a postponement (?)

European Parliament (more politically responsive)

No authority on this issue; can adopt resolutions

Can help with political pressure on Council and Commission
Work through party organizations
Sensitive to what citizens want (grassroots)

Aldeasas Privatization

Retained close ties with Spanish government

Investors concerned over abolition created

pressures to address the issue with market and
nonmarket strategies

Privatization occurred September 1997

Tabacalera acquired a 30% stake.
Tabacalera was government-owned
The remaining 70% of Aldeasas capital was sold
through an IPO in September 1997 (Euro 19.89)
Tabacalera was privatized April 1998

Aldeasa Outcome (C)

Gerhard Schroeder led the campaign for postponement at

the European Council (heads of state) meeting (June 1999).
14 of 15 heads of state voted for postponement of the
abolition deadline; Denmark voted no. Postponement
needed unanimity, and thus it failed.
Other countries (the Netherlands, Belgium, Italy, Portugal,
and Finland) may have opposed postponement but voted for
it and free-rode on Denmarks vote.
Aldeasa chose a volume strategydid not raise prices
Aldeasas intra-EU duty-free sales fell by 52% in JulyAugust 1999 compared to 1998.
Aldeasas duty-free sales to non-intra-EU passengers
declined by 21.8%. Did the advocacy campaign leave the
message that all duty free sales had ended? Apparently yes.
Diversified geographically more into Latin America

Aldeasa performance post-abolition

Expansion, 08/10/2000.
Aldeasa SA, the Spanish
duty free shop operator,
recorded a 30 per cent fall in
sales of tobacco products
and alcohol in 1999, as a
result of the abolition of
duty free sales for
passengers
Vertical axes are in euros.
Green = earnings/share; Red = dividends/share;
Blue = abolition of duty free status.
Source: http://profiles.wisi.com/profiles/scripts/largechart.asp?cusip=C724C6800&curconv=978

Lessons from Aldeasa

The interests on the travel side were strong and the

opposition, except for retailers, were dispersed and costly
to organize. Favorable for Aldeasa.
ETRF and duty free industry mounted a publicly visible,
grassroots campaign to accompany its lobbying.
Looking inside the black box of government indicates
opposition by the Commission, and the Council must
decide by unanimity. Unfavorable and likely decisive.
The coalitions nonmarket strategy could not overcome the
unanimity rule.
Probably would have been successful with a qualified
majority rule.
Aldeasa developed a reasonably good integrated strategy
nonmarket strategy to postpone abolition
market strategy to hedge for possible abolition or postponement

What is the future of nonmarket strategy in EU?

The enlargement of the EU has produced a greater

heterogeneity of interests. Will cooperation and
consensus deteriorate? (Have they already?) Will
local interests begin to dominate? (Do they today?)
Will geographic representation matter more?
Will concerns about the democratic deficit and
calls for greater direct democracy change the
institutions (e.g., more power to the EP) making
representation strategies more important?
Will these two lead to more US-style nonmarket
activity; i.e., activity that is broadscale, publicly
visible, and directly competitive?

The Constitutional Treaty

A President of the European Council would be elected

for up to 5 years.
Represent the EU in international affairs

A Foreign Minister would be appointed.

Both a commissioner and president of the Foreign Affairs
Council of Ministers.

An EU prosecutor would be appointed

Focus on cases affecting EUs financial interests (e.g., fraud)

The Commission would be reformed.

Only 18 voting Commissioners. (others rotate in)

Establish an enforceable bill of rights

Consolidate the 7 EU treaties (300 pages)
Subsets of member states could form agreements
(enhanced cooperation) among themselves to go
beyond basic EU law

The Constitutional Treaty

Qualified majority voting would become the default

decision rule of the Council. (co-decision procedure)
Qualified majority requires a double majority
A majority required 15 member states representing at least
65% of EU population; 4 member states needed to block.

Member states retain vetoes (unanimity) in certain areas

Foreign & defense policy, social security, taxes, culture
Tax harmonization will be difficult

Citizens could petition Commission to initiate a policy

Approved by the Council of Europe and InterGovernmental Conference on June 18, 2004
Rejected by French (legally binding) and Dutch (not
legally binding) voters in June. A period of reflection.
Aspects of constitution can be implemented directly

Taking StockWhat Happened?

June was 50th anniversary of the signing of the first EU treaty

Was the Constitution radical? No
But many groups found something they did not like

Why did governments sign treaty and voters reject it?

Gulf between the political elite and the people
Blair: the people are ahead of the politicians.

Why did the French and Dutch vote no?

Opportunity to signal discontent with incumbent government

Opposition to a nondemocratic EU
Economic slump in the Netherlands; marginalized by big countries
Fear of a threat to the social welfare system
Lower income French voters voted no and higher income
voters yes
Concerns about enlargementpast and future
Fear of immigration from within and outside the EU
EU postponed the liberalization of services for this reason

What are the fundamental issues?

Economic
Sluggish growth and high unemployment persist in several countries
Structural problems are citedrigid labor system, high taxes, excessive regulation

Threats from the east

Jobs will flow to the new member states
Workers from the new member states will flow west

Threat from imports and outsourcing

Is the U.S. experience a precursor of the EU experience?

Sustainability of social welfare systems in open international trade

The challenge from China, India, and elsewhere

The EU budget
Member states seem unprepared to increase their spending
Netherlands requested a reduction (pays highest per capita EU taxes)
BritishFrench spat on rebate and agricultural subsidies

The Euro
Can a common monetary policy be sustained with divergent fiscal policies?

Is political union needed/wanted or is economic union sufficient?

Political union to counterbalance the United States

What lies ahead?

Will there be more or less Europe?

Will there be future enlargement?
Will political and economic integration take two tracks?
Those embracing and those opposing economic liberalization

Will it continue to be difficult to adopt policies?

Will opposing blocks form in the Council?

What will be the future of the Euro?

Some citizens blame the Euro for high prices

What will happen in the member states economies?

Will jobs flow east toward low wages and low taxes?
Will workers flow west? (Several MS have barred immigration from
the new member states for up to seven years.)
Will wages be depressed in the west and social protection threatened?

Will the forces of open international trade work to the

advantage or disadvantage of the European Union?