"Alcohol war" escalates in northeastern EU

The northeastern most tier of the European Union (EU) is on the brink of a further escalation of an "alcohol war".

Tourists have been increasingly bringing alcohol products to Finland since last year, and the figure of import has soared by six percent, according to industry statistics.

A major increase in the traveler purchases is expected now, as both Estonia and Latvia will reduce their alcohol tax next week while Finland plans a further increase in alcohol tax in the near future. Both Estonia and Latvia see the tax cutback to be in their national interest.

Estonia and Latvia ended up in a mutual spiral of competition about the Finnish touristic spending. Finland has higher salary levels than the two Baltic countries and Finnish visitors often spend liberally there.

In the latest twist of the "alcohol war", Estonia is to reduce its alcohol tax by 25 percent next week, and Latvia by 15 percent. Latvia targets its reduction next week to hard liquor only though.

Besides Finns, Estonians have also started going to Latvia to purchase alcohol, the local correspondents of Finnish media in the Baltics have reported.

Latvian Prime Minister Arturs Krisjanis Karins was quoted by Finnish media on Tuesday as saying that "Latvia does not want to be a country of cheap alcohol," but Latvia had no choice but to act following the announcement by Estonia about a tax cutback.

Karins said Latvia had planned to increase alcohol prices but has to do something fast now, the other way.

Two years ago, Estonia increased its alcohol tax. The move resulted in more purchase trips to Latvia and the number of Finnish tourist purchases began to decline. With the latest tax cutback, Estonia wants to restore the earlier situation.

Imre Poll, a director of the major alcohol retailer Super-Alko in Estonia, told Finnish radio that they had opened three stores on the Latvian side, in order not to lose the Estonian customers.

Commentators have used the word "domino theory" to describe the situation, and a Tallinn-based correspondent of the Finnish national broadcaster Yle used the word "alcohol war".

The underlying factors of the situation are the totally free carriage of merchandise by travelers and the difference in alcohol taxation. Since Estonia became a member of the EU after the turn of the century, Finns started bringing in large amount of cheap beer and booze on ships across the 100-kilometer-wide Gulf of Finland.

In recent years, Finnish visitors began transiting through Estonia and purchasing their alcohol in Latvia, Estonia's southern neighbor. Currently a quarter of all the drinks that travelers haul from Estonia to Finland have actually been purchased in Latvia.

The price differences are tangible. A 24-can package of strong beer costs in Finland 32 euros, but in Estonia the price is around 18 euros and in Latvia under 14 euros. Half a liter of vodka costs in Finland 15.7 euros while in Estonia 8.5 and in Latvia 6.5. Each traveler can bring as much as he or she can carry or haul on a trolley. If the person brings more than one person is able to, imports are treated as for someone else and will be taxed.

An upgrade of alcohol tax revenue in Finland was decided in the governmental talks in June as the political parties could not agree on an increase in corporate taxation, for example.

However, Finland is now considering reacting to the Baltic countries' new move.

Finnish Prime Minister Antti Rinne said after his talks with Estonian Prime Minister Juri Ratas two weeks ago that Finland could adjust its increase to the "impact of the Estonian reduction". National broadcaster Yle said on Tuesday that this could mean that Finland would target wines and mixed drinks more than beer and hard booze, as the former products' prices will not be reduced in the competing countries.

In Finland, the development has resulted in an outcry from the restaurant industries. Restaurants will lose dining customers as the alcohol purchased abroad will be consumed at home.

Timo Lappio, the interest representative of the national tourist and restaurant fraternity, told Yle on Tuesday the amount of touristic import has now already exceeded by one and a half times the amount consumed in restaurants in Finland.