London, June 1999

PARTNERSHIP FOR PROSPERITY

This paper describes the status of Gibraltar, changes in its economy and recent developments, including in its relations with Spain. Focus International and Spotlight Britain papers are available on the FCO web site: www.fco.gov.uk

The people of Gibraltar, a narrow peninsula of 6 sq km connected by an isthmus to the south of Spain, have developed a strong sense of identity during the time that the territory has been under the sovereignty of the United Kingdom (UK). For over 200 years, Gibraltar was a garrison town dependent for its livelihood on a large British military presence, in recent years under the Ministry of Defence (MOD). Today Gibraltar is undergoing a process of transition, as the military presence has been significantly reduced, and the Government of Gibraltar is actively seeking to diversify the territory’s economy. The British Government, committed to the interests and prosperity of the people of Gibraltar, is helping to achieve this aim.

A British Overseas Territory

In 1713, Gibraltar was ceded in perpetuity to Britain by Spain under the Treaty of Utrecht. It is now an Overseas Territory of the UK and the people of Gibraltar, who have the status of British Dependent Territories Citizens (Gibraltar), have been declared UK nationals for European Union (EU) purposes. They also have the right to register as British Citizens, and many choose to do so.

Gibraltar is within the EU as part of the UK’s membership, and Gibraltarians have the right of free movement within the EU. Gibraltar is not represented in the European Parliament, although the UK is seeking to establish representation for the territory by amending the 1976 European Community (EC) Act on Direct Elections.

The Gibraltar Constitution, adopted in 1969, gives the territory a considerable measure of devolved government. Local ministers are responsible for a wide range of "Defined Domestic Matters", including the economy, while defence, external affairs, internal security and financial stability remain the responsibility of the Governor, who is HM The Queen’s personal representative in the territory. The House of Assembly, for which elections are held every four years, consists of a Speaker, 15 elected and two ex-officio members. In the 1996 general election, the Gibraltar Social Democrats came to power under the leadership of the Hon Peter Caruana QC, now Chief Minister.

The Gibraltar Government is responsible for giving effect to EC legislation, while Britain is answerable to the European Court of Justice for the implementation and enforcement of EC obligations in the territory. Gibraltar is exempt from Community policy in four areas: the Common Customs Tariff, the free movement of goods (but not services), the levying of Value Added Tax, and the Common Agricultural and Fisheries Policies.

A diversifying economy

In the past, the economy of Gibraltar was highly dependent for employment on the British military, which had large numbers of personnel stationed there. Today, the military presence is much reduced, although the locally recruited Royal Gibraltar Regiment remains based in the territory.

In recent years, Gibraltar has seen major structural change from a public to a private sector economy. Gibraltar is keen to secure its economic future through diversification: through increased tourism; the provision of financial services; and through the development of so-called niche sectors (specialised and other small sectors which require little land, but offer high added value).

Gibraltar receives around 6 million visitors a year. In February 1997, the Government of Gibraltar announced a package of measures to boost tourism, including grants and soft loans for hotels. The budget of May 1997 doubled the allocation to the tourism sector and, in October that year, a new cruise line terminal was opened. The dockyard, formerly owned and used by the MOD, is now run by the British company, Cammell Laird. In December 1997, an international conglomerate announced an investment of £3 million in a winebottling plant. And General Electric is finalising plans to set up a satellite ground station in Gibraltar.

The financial services sector accounts for some 20 per cent of Gibraltar’s Gross Domestic Product. The sector is regulated by a Financial Services Commission (FSC), which reports to a committee comprising senior financial experts from both the UK and Gibraltar. In June 1997, the British Government gave the FSC permission to authorise Gibraltar-based insurance companies to operate outside the territory in other parts of the European Economic Area (EEA).

Payment of grant-in-aid by Britain ceased in 1993, at Gibraltar’s request. However, the British Government secured some £18 million worth of EU Structural Funds for Gibraltar during the period 1993-99. The money is being used to promote new businesses (especially small and medium-sized enterprises), develop tourism, improve the infrastructure and carry out training programmes. But Gibraltar’s ability to achieve consistent economic growth is in part dependent on its ability to maintain a mutually beneficial relationship with its near neighbours, and in particular with the Campo region of Andalucia, Spain.

Illicit trafficking

Smugglers have sought to exploit Gibraltar’s position outside the EC Common Customs Area to smuggle tobacco from the Rock of Gibraltar to Spain. The current and previous Governments of Gibraltar have taken firm measures to stop the territory’s involvement in smuggling activity, including by introducing legislation to control the importation and use of the fast boats used by smugglers. These measures have proved extremely successful in combating illicit trafficking.

Britain-Spain dispute

Successive Spanish Governments have accepted British sovereignty over Gibraltar, but have argued that it is an anachronism. They have not accepted British sovereignty over the isthmus which connects the Rock to Spain. Britain’s title to the southern part of the isthmus is based on continuous possession over a long period. The British Government is committed to the guarantee, enshrined in the Preamble to the 1969 Constitution, that it will never enter into arrangements under which the people of Gibraltar would pass under the sovereignty of another State against their freely and democratically expressed wishes.

It has long been Spanish policy that Gibraltar should be returned to Spain by peaceful means. Historically Spain has attempted, at the UN and in other fora, to qualify the right of self-determination of peoples with her interpretation of a so-called principle of "territorial integrity". Spain argues that the restoration of her territorial integrity supersedes any Gibraltarian right of self-determination. Britain does not accept this. Britain supports the principle or right of self-determination, reflecting the wishes of the people concerned, but maintains that it must be exercised in accordance with the other principles and rights in the UN Charter and with other treaty obligations. In the case of Gibraltar, these include the Treaty of Utrecht, which would give Spain the right of "first refusal" if Britain were to relinquish sovereignty. Independence for Gibraltar could, therefore, become a reality only with Spanish consent.

During the 1960s, Spain tried to put pressure on Britain and Gibraltar by imposing restrictions on communications between Spain and Gibraltar. She reacted to the introduction of the 1969 Gibraltar Constitution by closing the Gibraltar-Spain frontier, which was eventually re-opened to pedestrians in 1982. It was not fully re-opened, however, until 1985, in advance of Spain’s entry into the EC in January 1986.

The 1984 Brussels Communiqué, issued jointly by Britain and Spain, established a process of negotiations (the "Brussels Process"), which enables both sides to discuss a range of Gibraltar-related issues, including sovereignty. At the most recent meeting of Foreign Ministers under the Brussels Process, in December 1997, the Spanish Foreign Minister, Abel Matutes, put forward proposals for an indeterminate period of joint sovereignty over Gibraltar, after which sovereignty would revert to Spain. There is considerable public and political opposition in Gibraltar to these proposals. Britain has agreed to study them and reply at the next Brussels Process meeting, the date of which has yet to be set.

Spain continues to create practical difficulties for Gibraltar, with escalations in tension from time to time. Recent lengthy border delays began after the arrest of the crew of a Spanish fishing boat, in late January 1999, for fishing illegally in British waters around Gibraltar. Following a blockade of the border by Spanish fishermen on 29 January, the Chief Minister reached an agreement with Spanish fishermen’s representatives, building on an earlier understanding reached between the British and Spanish Foreign Ministers, over fishing in waters around Gibraltar.

The situation at the border was particularly bad in early February, when delays for cars on occasion reached six hours. The British Government has repeatedly raised the question of the delays with the Spanish Government and has brought the matter to the attention of the European Commission. There has since been a gradual improvement, with delays for cars now generally ranging between 30 and 90 minutes. The volume of traffic crossing the border is close to, but still below, the levels recorded at the same time in 1998.

This question, among many others, was discussed when Mr Matutes and Robin Cook, the British Foreign Secretary, met on 21 February l999. Speaking at a Press conference after the meeting, Mr Cook pointed out that Gibraltar was a democracy and that there could be no change in its status against the wishes of its people. At the same time, Britain wished to promote a strong partnership between Gibraltar and the neighbouring Spanish region, reflecting their joint interests in the economy, tourism, employment and the environment. Britain was happy to work with Spain in order to build that partnership.

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