The Government must challenge a report from the European Commission which is believed to reject pleas for any reprieve for duty-free facilities, the House was told.

Duty free is scheduled to end in June this year, although there has been a growing lobby among EU member-governments for its retention, following an EU decision in 1991 to abolish it this year.

Labour's Foreign Affairs spokesman, Mr Proinsias De Rossa, said the Government could not allow the report, requested by European leaders at their summit last December, to hold sway.

He called on the Taoiseach to begin lobbying to have the report rejected and to use the Berlin summit to speak to each government leader. Even the Commission report "which I believe widely underestimates the level of job losses, accepts that there will be 20,000 job losses throughout the EU and 1,200 in Ireland".

However, the Minister of State for Finance, Mr Martin Cullen, said Germany's fears about job losses with the abolition of duty free would determine how it handles the issue at the next meeting of EU finance ministers. He ail that said the German Minister for Finance, Mr Oskar Lafontaine, had written to the Minister for Finance, Mr McCreevy. The letter, received yesterday, "confirmed German concern about the employment aspects of the decision to end duty free, which will influence his [Mr Lafontaine's] handling of this topic at Ecofin". Mr Cullen pointed out that when the German government changed Mr McCreevy wrote to the Minister and to several other EU finance ministers. Germany could have a major influence on other states and Mr Cullen added that France too had recently redoubled efforts to get a change of mind on the controversial issue.

Referring to the report, Mr Cullen said it was expected shortly and would be discussed again at the March Ecofin conference of finance ministers. "I hope that the Commission will not merely restate earlier responses when they consider this matter formally in the near future. They should certainly note that the mood across Europe is moving the Irish way - for the retention of duty free and tax-free shopping."

Mr De Rossa, who raised the issue on the adjournment, said "it is difficult to understand how any government or international body like the EU would deliberately put people out of work. Sometimes governments have to make difficult choices that can lead to job losses."

But it was unprecedented for any institution to take a decision, purely for dogmatic reasons, to jeopardise what some sources in the industry claimed could be as high as 11,000 jobs in this country and 140,000 in the wider EU.

"The Government must not allow this to happen," Mr De Rossa said. "This is a matter of significant interest to the people of Europe."