It's time for Britain to "get off the fence" over and take a "tougher line" over Spain's behavior towards Gibraltar, says the Foreign Affairs Committee. (Photo: Getty)
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The UK government must “get off the fence” over Gibraltar, says Foreign Affairs Committee

Sir Richard Ottaway, chair of the Foreign Affairs Committee (FAC), shares their strong recommendations on Gibraltar.

When problems emerged in Gibraltar last summer, with seven-hour-long delays to cross the border, the Foreign Affairs Committee of the UK parliament took a strong interest in what our government was doing in response. We published our report on the matter on the 2nd of July and said that the behaviour of Spain toward Gibraltar is unacceptable.

A NATO and EU ally is, as a matter of policy, deliberately impacting the economy and functioning of a British Overseas Territory. It is time for the UK government to take a tougher line.

The dispute has a 300-year long history. However, in the last three years, the Partido Popular government in Spain has taken a more hard-line approach to the dispute. It has significantly increased its pressure on Gibraltar and its people. As a result the Gibraltarians have suffered deliberately imposed border delays, aggressive maritime incursions, calculated pressure at the EU and UN, as well as inflammatory rhetoric from Spanish ministers about its sovereignty and its economic affairs.

Spain’s actions have placed the UK government in a difficult position. It has a strong bilateral relationship with Spain that is in the interest of all British citizens, including the one million Britons who live in Spain.

But the government also has responsibilities toward Gibraltar and it cannot ignore actions by Spain that are intended to make the lives of Gibraltarians more difficult.

First, we regret that talks including all three partners (Spain, the UK and Gibraltar) have been suspended, and ask the government to set out what offer it has made to Spain, and how it intends to restart the talks.

We are deeply concerned about the dramatic increase in maritime incursions into British Gibraltar Territorial Waters, and the hostile tactics of some of the vessels that conduct them.

The Foreign and Commonwealth Office (FCO) rightly protests about each incursion, but we were disappointed to find that the FCO sometimes lodges diplomatic protests weeks after the event, robbing them of all force. This gives the wrong impression to Spain about how seriously the UK takes this issue. We recommend that protests are lodged within seven days.

We have no doubt that delays imposed by Spain at the border with Gibraltar are politically motivated, and that the border is being used as a means of coercion.

The government should state publicly that it will take legal action against Spain in the European Court if there is little improvement at the border in the next six months.

We considered the possibility of Gibraltar joining the Schengen Area while the UK remains outside. Although we saw the merit in this idea, we suspect that the legal and economic implications could be considerable.

Spain continues to use international institutions as a means of applying pressure on Gibraltar. Gibraltar remains on the UN list of Non-Self-Governing Territories, despite repeated UK government attempts to de-list it. And only a few weeks ago Spanish MEP’s were trying to limit Gibraltarian aviation rights in the European Parliament. Spain also continues to refuse to allow direct military movements between Gibraltar and Spain, even among its NATO partners.

As a result of all this pressure, Gibraltar feels it is under siege. The government’s laudable attempts to “de-escalate” the dispute have not worked. They were right to try diplomacy but they must now take a more robust approach (as long as this is agreed with the government of Gibraltar). We recommend that the government take some immediate actions now, including:

  • More prompt diplomatic protests about incursions and border delays, and summoning the ambassador;
  • Increased efforts at the EU and UN on Gibraltar’s behalf;
  • Renewed effort to establish trilateral talks;
  • Withholding UK support for Spain’s international goals (such as membership of the UN Security Council) unless Spain’s attitude toward Gibraltar changes.

In terms of more serious measures, we further recommend that the government be more robust in its defence of the territorial waters around Gibraltar, and have asked that it report back on how it intends to do this.

Finally, we recommended that if these measures do not improve the situation within six months, the UK should take Spain to court for infringement of EU obligations at the border.

Sir Richard Ottaway MP is Chairman of the Foreign Affairs Committee

 

Photo: Getty
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Gibraltar - impact of Brexit

Last week our editor took a general overview of some of the scenarios for Gibraltar if Britain were to leave the Euro. This week, as the atmosphere in the British Conservative Party becomes ever more toxic, Michael Castiel, partner at Hassans lawyers on the Rock, goes into more detail (this piece written before the Iain Duncan Smith resignation and subsequent arguments happened).

However unlikely it may prove, the prospect of Britain's withdrawal from the EU sends shivers through Gibraltar's financial services, gaming and tourism industries, which are at the core of Gibraltar’s economy. For, if Britain leaves the EU, Gibraltar goes too, and, should Brexit occur, it is Gibraltar’s relationship with the UK that as in the past, largely will shape Gibraltar's future.

Gibraltar joined the European Union in 1973 as part of the UK. While rights to freedom of services across borders of EU member states apply between Gibraltar and the rest of the EU, because Gibraltar is not a separate member state (and is in fact part of the UK Member State) those rights do not apply between Gibraltar and the UK. Instead a bilateral agreement, formalised almost two decades ago, gives Gibraltar's financial service companies the equivalent EU passporting rights into the UK. Accordingly and pursuant to such agreement, where EU rights in banking, insurance and other financial services are concerned, the UK treats Gibraltar as if it is a separate member state.

This reliance on the special relationship with the UK is recognised by both the Government and the Opposition in Gibraltar, and when the territory (which in this instance as part of the UK electorate) goes to the polls on 23 June, the vote to remain in the EU is likely to be overwhelming. This may have symbolic significance but realistically seems unlikely to influence the outcome. In actual terms, although some non-EU jurisdictions use Gibraltar and its EU passporting rights as a stepping stone into Europe, almost 80% of Gibraltar’s business dealings are with the UK.

But whether or not Britain maintains the 'special relationship' with Gibraltar, if Brexit becomes a reality, other factors will come into play, with the ever-present Spanish Government’s historic sovereignty claim over Gibraltar topping the list.

Recently Spain's caretaker Foreign Minister Jose Maria Margallo went on record that if the UK voted to leave the EU he would immediately 'raise with the UK the question of Gibraltar.' If this was to come about it could take one or more of several different forms, ranging from a complete closure of the border between Spain and Gibraltar, demanding that Gibraltar passport-holders obtain costly visas to visit or transit Spain, imposing more stringent border controls, or a frontier toll on motorists driving into or out of Gibraltar. The latter idea was in fact floated by the Spanish Government three years ago, but dropped when the EU Commission indicated that any such toll would contravene EU law.

Here, again, imponderables come into play, for much will depend on which political parties will form the next Spanish government. A Spanish government headed by the right wing PP party is likely to take a less accommodating attitude towards Gibraltar (the Foreign Minister having recently indicated that in case of Brexit the Spanish Government may opportunistically push once again for a joint sovereignty deal with the UK over Gibraltar) whereas a left of centre coalition will likely adopt a more pragmatic and cooperative relationship with Gibraltar in the event of EU exit.

The most significant changes to Gibraltar's post-Brexit operation as an international finance centre are likely to be in the sphere of tax, and while Gibraltar has always met its obligations in relation to the relevant EU rules and Directives, it has also been slightly uncomfortable with aspects of the EU's moves towards harmonisation of corporate taxes across member states.

Although it was formed as a free market alliance, since its inception fiscal matters have been at the root of the EU, but Gibraltar's 'special relationship' with Britain has allowed considerable latitude in relation to what taxes it imposes or those it doesn't. However, as is the case with other member states, Gibraltar has increasingly found in recent years its fiscal sovereignty eroded and its latitude on tax matters severely curtailed.

As in Britain, Gibraltar has benefitted from several EU Directives introduced to harmonise and support the freedom of establishment, particularly the Parent-Subsidiary Directive which prohibits withholding taxes on cross-border intra-group interest dividend and royalty payments made within the EU.

As a stepping stone for foreign direct investment, should Brexit come about EU subsidiaries could no longer rely on these Directives to allow tax-free dividend or interest payments to their holding companies based in Gibraltar. In the case of the UK, bilateral double tax treaties will no doubt mitigate the impact of the non-application of any tax related Directives. Gibraltar, however, is not currently a party to any bilateral double tax treaties. Accordingly, Gibraltar would either have to seek from the UK the extension of all or some of the UK’s bilateral tax treaties to Gibraltar (subject of course to the agreement by the relevant counterparties) or it would need to negotiate its own network of bilateral double tax treaties with a whole series of EU and non EU Member States. To say the least, neither of these options would be straightforward to implement at short notice and would need the wholehearted support of the British Government

Whilst Gibraltar’s economy is likely to be adversely affected should Brexit occur, there may be some potential benefits. An EU exit would result in fewer regulations and possibly may provide Gibraltar with greater exposure to emerging economies.

From a tax perspective, an EU exit would probably enable Gibraltar to introduce tax rules and incentives that are contrary to EU tax laws and would provide the Gibraltar Government more freedom to adopt competitive tax regimes that may be considered contrary to EU state aid rules. How possible or effective any such strategy would be is doubtful given the OECD driven anti-tax avoidance climate affecting all reputable jurisdictions whether within or outside the EU.

In this as well as other possible change much will hinge on any post-Brexit relationship with the UK - an issue which the Gibraltar Government addressed recently in a paper sent to Westminster's Foreign Affairs Committee. It stressed not only that 'EU membership has been an important factor in the development of Gibraltar’s economy' but also the importance of 'clarity as to the rights the British Government will protect and defend for Gibraltar in the context of its own negotiations.' 

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