Brussels, 10/03/2004 (Agence Europe) - Tuesday's Ecofin Council spent just one minute on the reduced VAT dossier (see yesterday's EUROPE, p.7). The French delegation used this minute to send round a "non-paper" in favour of the application of a reduced rate of VAT for recorded music. Arguments put forward by Paris: possible distortions of competition brought about by the operation on the internal market would be negligible, and the European Commission itself recognises that different conditions of competition are acceptable if they support political, social and other objectives of the Member States. Noting the "accelerated decline" of the recorded music market in European since 2002 and the increase in piracy and counterfeiting, France said that lowering VAT appeared "to be the most likely measure to lower prices, sustain demand, and promote the diversity of supply". According to Paris, the budgetary costs of this kind of reduction for the States would be little or nothing, "because a decrease in the VAT garnered on retail prices would be offset a sharp increase in sales". However, unlike restaurants and hostelry, recorded music is a good rather than a local service. This, as French Economy and Finance Minister Francis Mer himself acknowledged, makes it the case harder to argue.
Whilst acknowledging the foundations of the Commission's working document of 19 February (see EUROPE of 20 February, p.11), which stresses the problem of risks of competition distortion within the internal market caused by the application of different rates by the Member States for the same goods, France played down the extent of these risks. Paris sees the risk as being all the more limited by virtue of the fact that the recorded music market remains strongly cloistered by national cultural preferences and linguistic barriers. "Recorded music prices already vary enormously between the Member States, without this situation having any negative effect on trade". The French "non-paper" also states that downloading music from the Internet "would not be affected, because it would remain subject to normal VAT rates due to the electronic commerce directive".
France's second argument is that the Commission itself acknowledges in its February document that "certain differences in competition conditions are acceptable if they support certain political, social and other objectives of the Member States. On this, Paris feels that "the risk- which is in any case small- of competition distortion should be seen in line with the political, economic, cultural and social objectives to which the faculty of applying reduced VAT rates will contribute: respect of the political choices of the Member States, in the name of the principle of subsidiarity; the fight against piracy and support for cultural industries; promotion of creativity and cultural diversity; focusing on the young population, which is the main consumer of music and which generally has modest purchasing power". The "non-paper" also notes that "the principle of equality of treatment between the Member States, as underlined by the Commission, would be entirely respected". For France, "the potentially positive consequences" of a reduction in VAT fully justifies "that the possibility of so doing is recognised in the Member States which wish to do so, whilst allowing the others their right to carry out a different policy".