Alcohol trade across the Gulf of Finland

Thomas Karlsson,
Senior Researcher, Vice Head of Unit,
The Alcohol, Drugs and Addictions Unit,
Department of Public Health Solutions,
National Institute for Health and Welfare (THL),

Border trade with different kind of commodities has been around as long as there have been borders. The extent and volume of border trade is steered by the same logics as trade in general and influenced by what kind of goods and at what prices these goods are sold for in different places. Simply put, cross-border trade exist where there are strong enough push and pull factors to get people to buy and transport goods from one country to another. Consequently, border trade is often fuelled by large price differences in certain specially taxed commodities, like alcoholic beverages, gasoline or tobacco.

Within the EU there are nowadays very few artificial hindrances of border trade and therefore cross-border purchases between member states have been steered mostly by price. This has also been the case regarding cross-border trade with alcohol between Finland and Estonia. As price differences are of great importance for the volume of cross-border trade, also alcohol taxes are highly relevant.

Several factors determine the volume of cross-border trade in alcohol. These factors are:

  • the magnitude of price differences,
  • geographic circumstances at the borders,
  • existence of import quotas,
  • strictness of border controls,
  • traffic infrastructure, the amount of population residing near the border, and
  • travellers’ motives for crossing the border.

Although border trade of alcoholic beverages exists in all of Europe in various degrees, the Nordic and the Baltic countries have during the 2000s become a hotspot for cross-border trade of alcohol. This development has partly had to do with the building of the single European market and the abandoning of quantitative quotas for travellers’ imports of alcohol within the EU. The import quotas were fully abolished in the Nordic countries in January 2004, only five months before Estonia became a member of the union.

Although Finland lowered their alcohol taxes by an average of 33 % in March 2004, alcohol imports from Estonia to Finland skyrocketed after Estonia became a member of the EU. From 2003 to 2004, alcohol imports increased by about two thirds and the following year the increase continued. Since 2005 alcohol imports to Finland has fluctuated between 6 and 10 million litres of 100 % alcohol per year. Of all alcoholic beverages brought to Finland by travellers every year about 60 to 85 %, depending on the beverage is bought from Estonia or from a ship sailing the seas between Helsinki and Tallinn.

In Finland, total alcohol consumption per capita was 12 % higher in 2005 than in 2003. Despite the tax cut, alcohol imports doubled between 2003 and 2005. Meanwhile, domestic sales of alcoholic beverages increased as alcohol had become substantially cheaper due to lower taxes. The state, however, collected 29 % less tax revenues on alcoholic beverages in 2005 than in 2003. Also alcohol-related harms and especially alcohol-induced liver disease deaths increased substantially. The events that took place in 2004 clearly show that paying taxes and yielding revenues in one country and creating harms and alcohol-related costs in another is an integral problem with cross-border trade in alcohol.

During the past few years, travellers’ alcohol import from Estonia to Finland has been quite stable and even declining. This can at least partly be contributed to the several tax increases made in Estonia during the past few years. The most significant of them took place in July 2017, when taxes on beer were increased by 70 %. These tax increases explain most of the decline in alcohol imports from Estonia in recent years. In 2018 between 6 and 7 million litres of 100 % alcohol has been imported annually. Imports of beer, ready-to-drink beverages, ciders and wine have been on the decrease, whereas alcohol imports of spirits and intermediate products have increased.

Travellers’ alcohol imports has during the past decade transformed from a ”race to the bottom” regarding alcohol taxes towards increasing taxes both in the Baltic countries and Finland. In Lithuania taxes on beer and wine were increased in March 2017 by 112 % and 111 % respectively and taxes on distilled spirits by 23 %. Estonia will continue to increase taxes on alcohol until 2020. As a drawback, the tax increases have sparked cross-border trade of alcoholic beverages from Latvia, where also alcohol buying Finns have in a small scale found their way. However, also in Latvia there are plans to increase the alcohol taxes in the future.

Is then alcohol trade in the Baltic Sea region a problem, and if it is can the problem somehow be solved?

As long as it is affordable or at least feels advantageous to bring less expensive alcohol from another country, the phenomenon will persist. To solve the problem by simply harmonizing tax levels downwards is not a viable solution. Although a tax reduction could reduce alcohol imports, it would also:

  • increase overall alcohol consumption,
  • increase alcohol-related harms and costs, and
  • reduce alcohol tax revenues.

Currently, there are no quantitative restrictions on alcohol being transported for personal use from one EU country to another. The only restriction is that the alcohol may not be resold. There is, however, the possibility for individual countries to use guide levels that are indicative, but not legally binding. These guide levels, which are in force in Finland, are: 10 litres of spirits, 20 litres of intermediate products, 90 litres of wine and 110 litres of beer. On the EU level a decision to halve or even lower the guide levels would not solve the problem but it would certainly help.

Expert article 2505

> Back to Baltic Rim Economies 1/2019