Supplementary written evidence – Government of Gibraltar (GLT0001)

Following evidence session Tuesday 13 December 2016

WITNESSES

The Hon Fabian Picardo QC MP, Chief Minister of Gibraltar

The Hon Dr Joseph Garcia MP, Deputy Chief Minister of Gibraltar

Mr Michael Llamas QC, Attorney General for Gibraltar

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ADDITIONAL MATERIAL IN SUPPORT OF ANSWERS TO QUESTIONS

POSED BY THEIR LORDSHIPS

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As stated before the Committee “viva voce” in some of the answers provided, we were a little more circumspect in some aspects of our replies than we might otherwise be, given that we are about to start a negotiation with the European Union, which will of course include the Kingdom of Spain. As the Prime Minister herself rightly, repeatedly, states, we must not show our hand entirely at this stage. But we do want to be as frank, candid and open as we can in order to be as helpful as possible to the Committee. We are sure that the Committee will already be sensitive to these issues.

As we indicated at the hearing, we are following up our answers in writing in order to assist the Committee. The format of this submission follows the headings of the questions which had been indicated by the Committee they might wish to ask. It is NOT intended to be, and is not, a transcript of the evidence provided by the Chief Minister before the Committee but is prepared in the voice of the Chief Minister as it is a shorthand written submission to the Committee made on his behalf and prepared with the support and assistance of the Deputy Chief Minister, the Hon Dr Joseph J Garcia MP, and Attorney General, Michael Llamas QC.

This written follow-up submission, includes detailed statistical data.

In addition to the invitation made at the hearing, Her Majesty’s Government of Gibraltar considers that it would be enormously helpful for the Committee to visit Gibraltar in order to assist its understanding of the issues facing our community in Brexit. In particular, the Committee would then be able to see the operation of the Gibraltar/Spain frontier, which will be a further British land crossing point with the EU post-Brexit.

1.              Chief Minister, in what you described as a “clear and unequivocal” statement of support, the people of Gibraltar voted by 96% to 4% to remain within the European Union. Why was there such overwhelming support for remaining in the EU?

•              Can you describe people’s reaction to the overall result in favour of ‘Leave’?

•              Have people’s views changed at all in the intervening months since the referendum?

I would say there are FIVE principal reasons for the overwhelming support in Gibraltar for remaining in the EU:

-          First: deep and unprecedented political unity in Gibraltar on this subject.  All former Chief Ministers joined me in advocating for a “remain” vote.  The then Prime Minister, David Cameron, visited Gibraltar to campaign for “remain” also. This was supported by all political parties in Gibraltar, all members of Parliament, all unions, in particular Unite the Union, and all employer representative organisations.

-          Second: the people of Gibraltar could see that Spain would use BREXIT as an opportunity to try to advance its Sovereignty claim. Indeed, no sooner had the result come in, BEFORE David Cameron had emerged from Downing Street to resign, Snr Jose Manuel Garcia Margallo was on Spanish TV making his offer of Joint Sovereignty. The referendum was therefore to a great extent seen as being about Sovereignty.

-          Third: Gibraltar is in the continental mainland and our ancestry is very much a blend of European nationalities. Much of our ancestors came to Gibraltar from places like Malta, Genoa, UK, Ireland, Spain and Portugal. Europe is very much part of our history, culture and collective DNA.

-          Fourth: the people of Gibraltar have over the years come to see the EU as providing a degree of protection against the excesses of a hostile neighbour through the application of EU law. The free flowing frontier has been seen as something guaranteed by the application of the EU Treaties and the fact that the Commission has been the arbiter or Guardian of the Treaties. Gibraltar has always had a “hard frontier” in terms of movement of goods (as we are not part of the Common Customs Union) and with passport or ID card checks for persons (as we are not part of Schengen).

-          Fifth: last, although no less important, is the issue of EU Funding. A total of £60m in 16 years. This is a significant amount in the context of Gibraltar.

Let me give you a recent illustration of the fourth point above.

It is not uncommon for Spain to operate border queues of 2 hours or more for vehicles. On some occasions lengthy queues have also accumulated for pedestrians, with queues inconveniencing those who cross the frontier on foot in high heat and in rain and cold alike.  These delays are disproportionate (as the EU Commission itself found and specifically stated in a letter to the Kingdom of Spain) and transparently politically motivated. In some instances, the former Spanish Foreign Minister, Snr Jose Manuel Garcia Margallo has specifically stated that the queues were created to demonstrate Spain’s ability to pressure Gibraltar.

For instance, Spain created intentional delays at the time of the visit by their Royal Highnesses Prince Edward and the Duchess of Wessex on 17 May 2012.

Or when the Gibraltar Government laid an artificial reef on 24/25 July 2013, entirely in keeping with EU Environmental law.

In the latter case, Spain started to regularly create politically motivated queues from between 3 to 7 hours. This practice extended from August to December 2013. There is detailed data available setting out the time it took vehicles and pedestrians to cross the frontier at this time and for every day since circa summer 2013.

Those principally affected by such queues are Spanish resident workers in Gibraltar (specific statistics of whom are provided further down herein), children who attend schools in Gibraltar but are resident in Spain (there are two private schools in Gibraltar which cater for such pupils) and tourists.

It resulted in a 9.4% drop in visitors from 2012 to 2013 (700,000 less visitors).

This resulted in a 15% drop in tourist expenditure from £244.75 million in 2012 to £207.24 million in 2013.

This was an estimated loss of £ 37.5 million to the economy of Gibraltar (calculated in terms of tourist expenditure surveys of spending) incurred during that 5-month period alone and when tourists continued to visit, albeit at a reduced capacity.

Thousands of complaints were made by EU nationals to the European Commission. Many by Spanish nationals. The then Prime Minister David Cameron consulted with me and called the then Commission President Barroso in order to get the Commission to act.

This resulted in three EU inspection visits to Gibraltar in September 2013, July 2014 and October 2015. The recommendations made by the Commission, which resulted in the finding that the delays were “disproportionate”, have led to an improvement in the flow of traffic across the border, although the situation is still not perfect.

It would be regrettable if all the hard work over so many years were now to prove to be in vain because fluidity at the frontier is no longer safeguarded.

Can you describe people’s reaction to the overall result in favour of ‘Leave’?

We in Gibraltar were deeply disappointed, and indeed, were left feeling anxious, by the result of the referendum. There was consternation on the streets of Gibraltar the day after the referendum and people were upset at the thought of the uncertainty created by the result.

But the people of Gibraltar pride ourselves in our respect for democracy and fully accept the result.

The result represents the result of a democratic vote expressed by the British people as a whole with our participation. And that is as sacred to us as our British Sovereignty.

Gibraltar has a strong tradition for standing by referendum results.

We held one ourselves as recently as 2002 when 98% of our population rejected the shared sovereignty deal that was being negotiated, against our wishes, by the UK and Spanish Governments of the time. The people of Gibraltar are adamant in their continued rejection of shared sovereignty today.

So we embrace the challenge that now faces us.

We do so in a positive state of mind.

We are working closely with UK Government Ministers and officials, in a Joint Ministerial Committee (Gibraltar, Exiting the European Union Negotiation), to make sure that Gibraltar is “fully involved” in the negotiations and the preparations for withdrawal from the EU in order to ensure that our concerns are heard and our position is safeguarded.

Have people’s views changed at all in the intervening months since the referendum?

The people of Gibraltar are conscious of the fact that we must now move forward.

There is an element of anxiety which is normal.

But they can see that the Gibraltar Government is working very hard indeed on the issues.

They can see that the Government of the United Kingdom HAS fully involved us in the preparations for the negotiations.

We have no reason to believe that we will be let down by the UK at the last minute.

Already the UK has agreed that in Financial Services, we will continue to enjoy access to the UK market as we have to date. The UK have confirmed that the Statutory Instrument which gave rise to that access (the “Financial Services and Markets Act 2000 (Gibraltar) Order 2001”) will not be repealed after BREXIT maintaining a bilateral relationship of access to the UK financial services market.

There is no doubt that whatever is in the bilateral gift of the UK will be seriously considered.

It is also clear that the UK and Spain have many areas of mutual interest and that these should not be adversely affected by Spain’s claim to Gibraltar in a way that is mutually disadvantageous.

The UK cannot afford that Gibraltar should be a net loser out of the BREXIT process, or else that would herald a high profile point of failure of the BREXIT negotiations.

2.              A - Can you set out the nature and terms of Gibraltar’s existing relationship with the EU?

              B - What mechanisms do you have for direct engagement with the EU?

              C - Have these changed following the referendum result?

A.              Nature and terms of Gibraltar’s existing relationship with the EU.

(a)              Terms of Membership.

Gibraltar joined what was then the European Economic Community with the United Kingdom in 1972. Gibraltar’s membership was the result of what was then Article 227(4) of the Treaty of Rome, and now Article 355(3) Treaty on the Functioning of the European Union, which provides:

              “The provisions of the Treaties shall apply to the European territories for whose external relations a Member State is responsible”.

The effect of that provision was to apply the EU Treaties in full to Gibraltar.

There is no dispute that Gibraltar falls within Article 355(3) TFEU. This was specifically recognised by Spain in Declaration 55 to the Final Act of the Intergovernmental Conference which adopted the Treaty of Lisbon (13 December 2007). The Joint Declaration by the Kingdom of Spain and the UK states:

              "The Treaties apply to Gibraltar as a European territory for whose external relations a Member State is responsible. This shall not imply changes in the respective positions of the Member States concerned."

That full application was qualified from 1972 by Articles 28-30 of the UK’s Act of Accession which effectively contain Gibraltar’s terms of membership.

The combined effect of these qualifications is that:

-            Acts concerning agricultural products (CAP) and acts of harmonisation of legislation concerning turnover taxes (VAT) are not applicable to Gibraltar (Article 28 of the Act of Accession);

-            Gibraltar is excluded from the EU’s Common Customs Territory (Article 29 of and Annex I, Section I, point 4, to the Act of Accession);

-            The EU’s Common Commercial Policy is not applicable to Gibraltar (Article 30 of and Annex II, Section VI to the Act of Accession).

In a judgment delivered in 2003, the European Court confirmed the long-held view of the UK and Gibraltar Governments that the effect of Gibraltar’s exclusion from the customs territory was that the free movement of goods rules of the single market do not apply to Gibraltar [Case C-30/01, European Commission v United Kingdom [2003] ECR I-9481].

Otherwise, Gibraltar is only excluded from those areas of EU law which the UK itself has not signed up to (e.g., Schengen, single currency).

All other parts of the EU Treaties, including the free movement provisions concerning services, persons, establishment and capital, apply to Gibraltar as do common policies such as the environment, consumer protection. It is a very full and substantial membership.

Indeed, the Crown Dependencies, which are also European territories for whose external relations the UK is responsible, opted in 1972 for a very limited membership confined essentially to forming part of only the Common Customs Territory and nothing else.

And all the other British Overseas Territories, not being European territories, only have an association agreement with the EU which is also shared with the non-European territories of Denmark, France and the Netherlands.

EU membership is an important factor that distinguishes Gibraltar from the CDs and all the other BOTs. Indeed, this is why, of all the CDs and BOTs, Gibraltar was the only one that participated in the referendum on 23 June 2016.

(b)              Application of EU law in Gibraltar.

The key provision to note is section 47 (3) Gibraltar Constitution which provides:

“Without prejudice to the United Kingdom’s responsibility for Gibraltar’s compliance with European Union law, matters which under this Constitution are the responsibility of Ministers shall not cease to be so even though they arise in the context of the European Union.”

This is a very important provision.

It means that EU matters are not treated as “external affairs” within Gibraltar’s internal constitutional order.

They are matters for which HMGoG is responsible.

Thus, HMGoG and the Gibraltar Parliament are responsible for the transposition and implementation of all EU measures within the internal legal order of Gibraltar in the same way as any national parliament and government does in every Member State.

Immigration and Customs, for example, are matters which are the responsibility of the Gibraltar Government.

That sits uncomfortably with any notion that any party may have to the effect that the UK and Spain could do a bilateral deal on these subjects without the participation and agreement of Her Majesty’s Government of Gibraltar.

EU law is directly given effect in Gibraltar by the operation of Gibraltar’s own European Communities Act 1972, which is primary legislation passed by the Gibraltar Parliament (in 1972 the House of Assembly), modelled on the UK’s own European Communities Act 1972.

Copies of the Gibraltar Constitution 2006 and the Gibraltar European Communities Act 1972 are at ANNEX 1 and ANNEX 2 hereof.

It is estimated that at least 70% of all laws enacted in Gibraltar are connected to our EU membership. It is a reflection of the extent of our EU membership.

For historical reasons, Gibraltar had always been behind with its obligations to transpose EU measures within our domestic laws. When I was first elected in 2011, there were around 60 EU directives the transposition deadline for which had expired and which had not been transposed. One of my first acts when I was elected into office was to revamp the team of law drafters in HMGoG to make sure we rectified this position. We did so by the following year. Since then, we have met all transposition deadlines and we continue to do so. We may well be the only jurisdiction in the EU that can say that.

I met with M. Michel Barnier several years ago when I visited him in his time as Commissioner for the Internal Market. He was much impressed with our compliance record and he confirmed it in a reply to a Written Question in the European Parliament on matters concerning Gibraltar’s compliance with EU obligations on financial services, transparency, taxation and money laundering.

B.              What mechanisms do you have for direct engagement with the EU?

Our principal direct engagement with the EU comes through our participation in the elections to the European Parliament. Whilst Gibraltar was originally excluded from participating in elections to the European Parliament, we won this fundamental right after a hard fought legal battle before the European Court of Human Rights [Matthews v the United Kingdom [GC], no. 24833/94, ECHR 1999-1].  A copy of the judgment is at ANNEX 3.

We have now participated in all EP elections since 2004. For the purposes of these elections, Gibraltar forms part of a “combined region” together with the South West Region in England. This was established by the UK’s European Parliament (Representation) Act 2003 and the European Parliamentary Elections (Combined Region and Campaign Expenditure) (United Kingdom and Gibraltar) Order 2004.

We have enjoyed our relationship with our MEPs of all the major political parties.

We also count with a representative office in Brussels, Gibraltar House, which was opened in 2014 and which is headed by one of our former MEPs, Sir Graham Watson (also a former leader of the Liberal Group in the European Parliament). Our representation engages regularly with the EU institutions, as it does with the UK’s Permanent Representation to the EU (UKREP).

The Deputy Chief Minister, Attorney General and I go to Brussels a number of times a year and we engage directly with all EU institutions there.

The Deputy Chief Minister, who is also the Minister for Europe and for Exiting the European Union, goes on additional visits throughout the year.

C.              Have these changed following the referendum result?

These mechanisms for direct engagement with the EU have not changed since the referendum. Our representation in Brussels is now, if anything, likely to be even more important.

3.              A - What has been the response in Spain to Gibraltar’s position following the UK’s decision to leave the EU?

B - What are the risks and implications of the re-imposition of a ‘hard border’ between Gibraltar and Spain, post-Brexit?

C - Would there be an economic impact on the Spanish side of the border as well as for Gibraltar?

D - How pertinent are concerns that, as William Hague put it, Spain could hold the UK “hostage” in Brexit negotiations over demands to renegotiate Gibraltar’s sovereignty?

E - Have you sensed any change in attitudes under the new Spanish Government?

A.              Response in Spain.

It has been well-reported that no sooner had the referendum result been announced on 24 June 2016, the then Spanish Acting Foreign Minister, Snr Margallo, shamelessly declared that BREXIT presented Spain with the best opportunity in the last 300 years to recover the sovereignty of Gibraltar. This was in keeping with his statements before the referendum.

He subsequently made other aggressive statements, notably, that BREXIT opens all options in relation to the border, including a complete closure, and that he would plant the Spanish flag on the Rock before I knew what had hit me and, in any event, within four years.

He obviously misunderstood how hard the Rock is and that the only flags that are to be planted there are those that the people of Gibraltar will allow.

He subsequently stated that Gibraltar must not form part of the BREXIT negotiations and that our position must be a matter to be decided on a bilateral basis between the UK and Spain. In this respect, vide the earlier reference to Section 47(3) of the Gibraltar Constitution.

Madrid has also stated that if Gibraltar wants to remain in the EU, in the event of a UK exit, then this would be possible for as long as Gibraltar agrees to shared or joint sovereignty between the UK and Spain, as a prelude to full Spanish sovereignty. Relevant articles reflecting those statements are at ANNEX 4.

The current Spanish Foreign Minister, Snr Dastis, has confirmed that Spain’s political stance on Gibraltar has not changed. He has declared that Gibraltar is a problem that will be resolved in the future, although he has not laid down his plans for such a resolution. In his appearance before the Spanish Parliament’s Foreign Affairs Committee on 21 December 2016, Snr Dastis set out more extensively the position of the Kingdom of Spain after Snr Margallo. See ANNEX 5[1].

B.              What are the risks and implications of the re-imposition of a ‘hard border’ between Gibraltar and Spain, post-Brexit?

Since the frontier was re-opened in the 1980’s, Gibraltar has always had a “hard border” with Spain. Stringent customs checks and identity checks are in operation which have allowed for more or less fluidity dependent more on the political mood in Spain than anything else. This is addressed under Q4 below.

C.              Would there be an economic impact on the Spanish side of the border as well as for Gibraltar?

In 2009, the Gibraltar Chamber of Commerce commissioned Professor John Fletcher of Bournemouth University, to undertake an economic analysis of the relationships that exist between Gibraltar and the economic area of the Campo de Gibraltar. That study was updated in 2015.

Professor Fletcher has undertaken economic impact studies for governments and international agencies around the world for more than three decades and has undertaken a variety of economic impact studies for the UK and Gibraltar Governments since 1978.

His main findings were as follows:

• In 2013 Gibraltar businesses imported almost £381M of goods and services from Spain.

• The number of jobs supported by the Gibraltar economy (within Gibraltar) is equivalent to 24% of the total (25,907/109,189) permanent jobs recorded in the Campo region in 2013.

• Spanish Frontier Workers earned more than £102M in 2013 and over £65M of this money was spent in the Andalucía region, thereby generating further rounds of economic activity.

• Other Frontier Workers (excluding Spanish and Gibraltarian) earned £105M from within the economy of Gibraltar, of which they repatriated 20% and spent the remaining £84M in Spain, almost £54M of this in the Andalucía region.

• Residents of Gibraltar spent almost £73M on shopping, food and other goods and services in Andalucía during 2013 of which £46M was within the Campo de Gibraltar

• Gibraltarians with second homes in the Campo de Gibraltar spent more than £62M in the Spanish economy during 2013 of which more than £40M was within the Campo de Gibraltar.

• Gibraltar’s economy increased the level of output in the Campo de Gibraltar in 2013 by £554M.

• Employment in the Campo fell from 102,468 in 2007 to 83,282 in 2013. With Frontier Workers estimated to be 9,424 the direct effect of Gibraltar on employment in the Campo de Gibraltar is estimated to be just over 11%.

Indeed, with its population of only 32,000, Gibraltar represents 25% of the GDP of the neighbouring Spanish municipalities with a combined population of 300,000.

Gibraltar is the second largest employer for the entire region of Andalucía, after the Junta de Andalucía, its regional Government. Our prosperity is their prosperity and vice versa.

This is why a sensible Brexit is not only in the best interests of Gibraltar, it is also in the best interests of Spain itself.

A copy of this Report is provided to the Committee in ANNEX 6.

D.              How pertinent are concerns that, as William Hague put it, Spain could hold the UK “hostage” in Brexit negotiations over demands to renegotiate Gibraltar’s sovereignty?

Wherever unanimity or consensus of all the EU Member States is required there is a risk Spain could hold the UK “hostage” in BREXIT negotiations over demands to renegotiate Gibraltar’s sovereignty or anything else that is likely to do damage to Gibraltar.

There are two potential areas for such mischief:

• Withdrawal Guidelines: The Guidelines for the withdrawal negotiations need to be provided by the European Council (Article 50(2) TEU) acting by consensus (Article 15(4) TEU). We will therefore need to be very vigilant that the Guidelines do not contain anything that excludes Gibraltar from the negotiations. Other European partners have indicated to us that they do not believe that it would be appropriate for Spain to pursue its expansionist sovereignty objectives by means of the BREXIT negotiations.

• New UK-EU Agreement: The procedure for the conclusion of a new agreement between the UK and the EU is set out in Article 218 TFEU. Whether or not Spain will enjoy a veto will depend on the nature of that new agreement, for example, whether or not it will be an agreement for which the EU has exclusive competence or whether it has mixed competence with the EU Member States, or whether the agreement covers a field for which unanimity is required for the adoption of a Union act. Recent case law, since the hearing, has purported to suggest that the new UK-EU Agreement will have to be considered a “Mixed Agreement” subject to approval in all the Parliaments of the EU Member States in keeping with the Constitutional order of each.  Otherwise, the basic position is that the Council acts by a qualified majority throughout the procedure (Article 218(8) TFEU).

Vigilance and firmness will be required because the action alluded to in the question is one that Spain has not hesitated to deploy in the past. The best example I can give you is in the area of EU aviation measures where, in the period between its accession in 1986 and the signing of the Cordoba Agreement in 2006 (a copy of which is provided at ANNEX 7), Spain notoriously held back or prevented the adoption of important EU measures unless Gibraltar was excluded from its scope of application.

The problem was solved in the Cordoba Agreement, but the new Spanish Government elected into office in 2011 reneged on its terms and reverted to its previous policy of excluding Gibraltar. For example, in 2013, the EU and Ukraine initialled a comprehensive air services agreement at the margins of the Eastern Partnership Summit in Vilnius. In the last days of the negotiations Spain sought to suspend the application of that measure to the Gibraltar Airport until the outcome of further discussions between the UK and Spain.

On 26 November 2013, anticipating Spain’s reneging of the Cordoba Agreement, Rt Hon Mr David Liddington MP, Leader of the House of Commons and then Minister for Europe, stated in the Commons:

“The 2006 Cordoba Agreement was a positive step forward in improving relations between the Governments of the United Kingdom, Gibraltar and Spain in respect of Gibraltar. We stand by the commitments made under the Cordoba Agreement, including on aviation, which is the key aspect of the agreement which Spain is now seeking to resile from.

It is important that Gibraltar is included in all EU aviation legislation. We cannot accept a return to the pre-2006 Cordoba Agreement practice of suspending Gibraltar airport from EU aviation measures. We have raised this with the Spanish Government and the European Commission and we are continuing to seek a mutually acceptable solution.”

There is a risk that Spain will raise the Gibraltar question in its preliminary internal discussions with the other Member States as they seek to agree a common position for the EU/UK negotiations. Indeed, in September of this year the previous acting Spanish Foreign Minister wrote to all the other EU capitals in order to put across his views on shared sovereignty over Gibraltar, as the price to pay for maintaining a relationship with the EU. As stated above, however, the indications from permanent representatives of other Members States has been contrary to this position.

A copy of the letter from Snr Margallo to the permanent representatives of all remaining EU Member States is attached at ANNEX 8.

Spain cannot be allowed to use her obsession with the sovereignty of Gibraltar as a bargaining chip in the negotiations between the UK and the EU.

It is important to be aware that this is an unnecessary and opportunistic contamination that the negotiating process may face.

In the words of the Foreign Secretary in the Foreign Affairs Committee in the House of Commons, on 13 October 2016, there must indeed be “implacable, marmoreal, Rock-like resistance to Spain in relation to Gibraltar”. Indeed, the people of Gibraltar deserve and expect nothing less.

It is for reasons such as these that we consider that it is imperative that the UK Government gives a clear signal to the EU that its negotiations include the position of Gibraltar and that Gibraltar will form an integral part of both the withdrawal process and the new EU-UK deal. An orderly and sensible Brexit is in the best interests of Gibraltar, the UK, Spain (especially the Spanish region around Gibraltar and the thousands of Spanish nationals who work in or derive economic benefit from Gibraltar and the free flowing frontier) and indeed the rest of the EU.

E.              Have you sensed any change in attitudes under the new Spanish Government?

It is true that Snr Margallo appeared to have a particular obsession with Gibraltar and that Snr Dastis appears to have a greater perspective of the bigger BREXIT picture.

He appears to be conscious of the position of the many Spanish nationals residing and working in the UK, and the many British nationals who reside in, and go on holiday and contribute to the Spanish economy.

So, yes, there appears to be a slight change in attitude. But the underlying potential threat remains and the overwhelming objective of the Kingdom of Spain in respect of Gibraltar remains, unfortunately, not cooperation for mutual benefit, but the recovery of the Sovereignty of Gibraltar.

Her Majesty’s Government of Gibraltar has reacted to the change in the Spanish Foreign Ministry, from Snr Margallo to Snr Dastis, by once again continuing the call for calm reflection, dialogue and cooperation for mutual benefit.  We remain strongly committed to the Trilateral Forum for Dialogue which was established in 2004 and which the United Kingdom Government has also repeatedly stated it remains strongly committed to.  A copy of the agreement creating the Trilateral Forum for Dialogue and signed by the Governments of the Kingdom of Spain, the United Kingdom and the Government of Gibraltar is attached at ANNEX 9.

4.              A - Could you outline what, in your view, are the main political and economic implications for Gibraltar of the UK’s decision to leave the EU?

B - Do you see any opportunities as well as challenges?

              C - What would be the impact for Gibraltar if the UK ends or significantly restricts free movement of labour after Brexit?

D - How important is unfettered access to the Single Market to Gibraltar’s economic model?

E - Did your Government undertake any contingency planning in advance of the referendum to prepare for the event of a ‘Leave’ vote?

A.              Economic and Political implications for Gibraltar of the UK’s decision to leave the EU?

Clearly, until such time as we know what the new relationship between the UK and the EU will be, it is difficult to assess what the economic effect of Brexit on Gibraltar will be.

HMGoG Departments, like UK Government Departments, have been preparing a series of Heat Maps assessing the potential economic implications for Gibraltar of the UK’s decision to leave the EU.

I will flag the following issues that the Heat Mapping exercise has confirmed.

(a)              Economic Implications.

The potential economic implications can be shown in relation to one single issue – the Border. The prospect of a closed or hard border is the most serious single issue that arises for Gibraltar from Brexit.

As at October 2015 there were 26,144 employee jobs in Gibraltar:

-          10,473 were held by frontier workers (“FWs”). That is, 40% of total employee jobs in Gibraltar are held by FWs.

-          5,824 FWs are Spanish nationals. That is, approximately 56% of FWs are Spanish nationals and just over 22% of total employee jobs are held by Spanish FWs[2]: This figure fluctuates daily and will peak at approximately 10,000 when there is a building boom in Gibraltar, something which is obviously cyclical.

Table 1: FWs in Gibraltar (as at October 2015).

A frontier which lacked the necessary fluidity for people to be able to access their places of work would therefore put directly at risk the jobs of 40% of the entire Gibraltar workforce.

FWs are employed across the entire economy:

Table 2: FWs by Sectors of the Economy (as at October 2015)

It cannot be assumed that these FWs would relocate to Gibraltar in the event of a harder, non-fluid border: the majority of them are in the lower paid sectors and will not be able to afford to reside in Gibraltar; those in the higher paid sectors may be unlikely to want to move to Gibraltar; and, in any event, there is presently a shortage of space and housing stock in Gibraltar to be able to accommodate any significant number of them.

The loss of any significant number of these FWs would affect direct Government revenue by way of loss of income tax receipts. It will also affect the general economy, especially in sectors which are heavily dependent on FWs and with the loss of these jobs to the economy.

Financial Services and Online Gaming are two important sectors of the Gibraltar economy. Together, they contribute approximately 40% to GDP, employing 6457 (24.7% of total employee jobs).

-          Financial Services: 1031 FWs (29.4% of the jobs in the sector);

-          Online Gaming: 1761 FWs (59.8% of the jobs in the sector).

The tourism sector would suffer a twofold shock from a harder or non-fluid border: (a) the sectors of the economy that are most dependent on tourism employ a very large number of FWs and (b) the overwhelming majority of tourists who visit Gibraltar do so via the border.

According to the Tourist Survey Report 2015, there was a total of 10.1 million visitor arrivals in Gibraltar in 2015. A total of 9.6 million of these visitors arrived by the border, of whom 7.1 million were tourists[3], that is, approximately 93% of total tourist arrivals entered Gibraltar via the border[4]. The border is therefore the vital artery of Gibraltar’s tourism sector.

Tourist expenditure in Gibraltar in 2015 has been estimated at £ 199.93 million. Tourists who came to Gibraltar via the border spent £ 139 million, that is, approximately 70% of total tourist expenditure.

Other potential socio-economic effects of a harder or non-fluid border include:

Importation of goods:               despite not being in the Customs Union, most of our goods are presently imported through the border.

Supply of food:              virtually all food is presently imported through the border.

Energy Supplies:              dependent on imports for fuel supply, most of it presently imported through the border. This will change in late 2017 as Gibraltar moves to a new LNG fueled power station. LNG will be imported via a dedicated vessel which SHELL has chartered for the purpose of supplying the Gibraltar Electricity Authority.

Management of Waste:              all waste streams are presently transported to Spain.

Health & Care Services:              26% of employees are FWs.

Referral of Patients:              over 50% of tertiary referrals are to Spanish health providers.

Aviation – Fuel:              aircraft refuel in Gibraltar for return flights from Gibraltar Airport using Jet A1 fuel which is presently sourced through the frontier.

Aviation – Passengers:              58% of passengers arriving at Gibraltar Airport do so in transit to Spain.

Aviation – Diversions:              when aircraft cannot use Gibraltar Airport they are routinely diverted to Malaga Airport and passengers bussed from Malaga to Gibraltar.

The Port:              service providers and parts are presently principally sourced from Spain.

Construction:              materials and plant are presently principally sourced from Spain.

(b)              Political Implications.

The main political implication will be not to allow Spain to advance its sovereignty claim over Gibraltar in any way. Spain has signalled it may use BREXIT for this purpose. It is essential that it is not allowed to do so.

In the same vein, Spain should not be allowed to obtain the exclusion of Gibraltar from any aspect of an eventual UK-EU deal that is important to Gibraltar’s economic stability and well-being. Indeed, as already stated, this is as much in the interests of the neighbouring Spanish region as it is in the interests of Gibraltar (cf the Chamber of Commerce Report at ANNEX 6).

One specific political implication that I would bring to your specific attention is the position of the British waters adjacent to Gibraltar, “British Gibraltar Territorial Waters” or “BGTW”.

It is well-known that Spain considers, contrary to all established principles of International Law, that Gibraltar does not have any territorial waters. This is strongly disputed by both the UK and Gibraltar Governments. Indeed, the legal advice that the Gibraltar Government has obtained, including from well-known Spanish lawyers and academics, is that the Spanish Government’s proposition is nothing short of absurd. The position, under the United Nations Convention on the Law of the Sea is clear in setting out the present territorial limits of BGTW[5] and these are recognised by all signatories to the Convention except Spain. Spain has entered a reservation in this respect which has no effect in International Law.

Spain nonetheless maintains its position and it has used the EU to seek to advance and confirm its sovereignty and jurisdiction over BGTW.

The most notorious example that has arisen so far is in the context of the “Habitats Directive” (Council Directive 92/43/EEC on the conservation of natural habitats and of wild fauna and flora). It provides for the setting up of a European ecological network of special areas of conservation known as “Natura 2000” and requires Member States to propose sites “within their national territory” to be included in that network.

On 19 July 2006, the EC Commission adopted a list of sites for the Mediterranean biogeographical region. That list contained two sites for Gibraltar. One of them was a site that had been proposed by the UK within BGTW (“UKGIB0002: Southern Waters of Gibraltar”).

On 12 December 2008, the EC Commission adopted an updated list of sites and designated, for the first time, a site proposed by Spain also within BGTW and indeed encompassing the entire British site (“ES6120032: Estrecho Oriental”).

On 27 March 2009, the UK Government wrote to the EC Commission expressing “its serious concern” in relation to the EC Commission’s listing of the Spanish site and reaffirming that it was “fully confident of its sovereignty over [BGTW] which extend to 3 nautical miles around Gibraltar”. The UK also stated that it was the “sole Member State competent to submit a proposal in respect of BGTW for designation as a [SCI]”, that it was clear that Member States could only propose sites which were “within their own territory” and that it was therefore “of major concern to the United Kingdom that the Commission has adopted Spain’s ‘Estrecho Oriental’ proposal..”.

It was to no avail. The UK and Gibraltar Governments challenged the Spanish designation before the European Courts, but both cases were unsuccessful on technical grounds (the Court did not hear the merits of the case)[6]. The Spanish site, which includes most of BGTW, therefore purports to stands to this day. The Spanish Government therefore has a purported obligation under EU law to ensure that activities in BGTW comply with the Habitats Directive and to perform enforcement, surveillance, monitoring and inspection functions in BGTW for that purpose.

With the UK leaving the EU, and not participating in the Working Groups and Committees that designate or monitor such sites, Spain will be able to act with impunity in such matters within the EU. It will no doubt take advantage of the EU to seek to assert jurisdiction in BGTW although this will have no legal effect whatsoever given the clear terms of UNCLOS and given the fact that a Member State of the EU can only act in respect of the EU for the territorial ambit of that State recognised by the United Nations. But despite that, Spain has already sought to use the EU to advance its claim to BGTW, even with the UK within the EU.

Unfortunately, these are not simply esoteric references to coordinates on maps. The futile attempts by Spain to claim BGTW then manifest themselves by action on the water with Spanish state vessels, either law enforcement or environmental exploration vessels, seeking to assert physical jurisdiction. This gives rise to confrontation with Gibraltar’s own such agencies.

B.              Do you see any opportunities as well as challenges?

There are for Gibraltar few opportunities worthy of mention.

At most we would welcome the non-application of EU state aid rules, not because we have any problems in complying with them, but because they have been incessantly used by Spain to attack our tax system.

In some instances, EU measures, which are designed for much larger economies than Gibraltar, have imposed disproportionate burdens on a small jurisdiction and administration such as ours. I have in mind, in particular, the EU public procurement rules and the extensive market analyses that have to be carried out in the electronic communications sector.

Gibraltar will nonetheless rise to the challenge of EU exit with the resilience always displayed by its enterprising and resourceful people.  Already commercial operators in Gibraltar are seeking alternative opportunities.  The assistance of the United Kingdom in ensuring Gibraltar is able to open new markets around the world will be essential in this respect. The presence of a Gibraltar office in Hong Kong will be particularly relevant. This office is already sourcing new opportunities for Gibraltar.  Additionally, the Government of Gibraltar has been very active in the establishment of stronger commercial links with the United States. A US/Gibraltar Chamber of Commerce has been established and strong political links have also been forged.

C.              What would be the impact for Gibraltar if the UK ends or significantly restricts free movement of labour after Brexit?

We are primarily concerned by Frontier Workers, not establishment of workers in Gibraltar.

D.              How important is unfettered access to the Single Market to Gibraltar’s economic model?

For Gibraltar, access to the single market means access to the single market in services, not goods.

As a result of its limited land mass (6.55 km²) there is no room for any significant manufacturing or heavy industry in Gibraltar. Gibraltar therefore relies on the service industry.

Article 56 TFEU, which is the legal basis for access to the EU single market for the provision and receipt of services, has therefore been a fundamental tool for the development of the Gibraltar economy. Three of the four main sectors of our economy, tourism, financial services and online gaming, have been developed on that basis (the former two to a greater extent than the latter). The loss of access to the EU single market for services would therefore strike a severe blow to the Gibraltar economy.

But it would also undermine Gibraltar’s capability to diversify and strengthen its economy. This would apply, in particular, to Gibraltar’s potential to develop trading activity in the other service sectors that have been harmonised and/or liberalised at EU-level, such as the broadcasting, audio-visual and electronic communications sectors, but also to the provision of the vast range of services which have been liberalised by Directive 2006/123/EC on services in the internal market (the “Services Directive”).

In these circumstances, it is essential that Gibraltar be able, as a priority, to access the UK market in a bespoke arrangement on services. We are already working on this with UK Government and officials. In this respect, whilst losing access to the EU single Market may turn out to be a consequence of the result of the referendum and “understandable” in the context (although not desirable), it would be unforgivable for the United Kingdom to deny Gibraltar benefits which are deliverable bilaterally. 

E.              Did your Government undertake any contingency planning in advance of the referendum to prepare for the event of a ‘Leave’ vote?

Yes. We considered every eventuality. Detailed heat mapping commenced only after the referendum result, however.

5.              What, in your judgement, should the UK Government prioritise in exit negotiations with the EU to get the best deal for Gibraltar?

1.              The best deal for Gibraltar is based on the following four axes:

(a)                A free flowing border, in particular for Frontier Workers, Tourists and persons who come in and out of Gibraltar on the same day.

(b)              A closer trading relationship with the UK.

(c)              To form an integral part of the new UK-EU Agreement, including on such a differentiated basis as might be necessary to take account of Gibraltar’s specific circumstances.

(d)              To be given the option to form an integral part of the new trade agreements that the UK will enter into with third countries.

Much will clearly depend on the detail as the negotiations advance, but let me explain to you the broad principles that inform my Government’s position on each of these.

(a)                A free flowing border, in particular for Frontier Workers and Tourists, persons who come in and out of Gibraltar in the same day.

As I have already said, when I talk about the importance of free movement for Gibraltar what is important to Gibraltar is a free flowing border particularly for Frontier Workers, Tourists and persons who come in and out of Gibraltar in the same day. So when I speak about free movement, I do not speak about immigration or of persons settling in Gibraltar. That is not a priority for us. It is important to understand this, because it then becomes clear that the position of the Gibraltar Government is not fundamentally different to the position of the UK Government on this issue which was so central to the referendum vote.

I do not consider that Gibraltar’s position with regard to the categories of persons that matter to us is any different to the UK’s own position in relation to the UK.

The tourist industry is one which is important to the UK economy and one which the UK Government will no doubt seek to protect in the negotiations. Similarly, Frontier Workers, and other persons who cross in and out of borders in the same day, are important at the Irish border.

A Common Travel Area could be established between Gibraltar and the EU subject to customs controls as there are today and as there always have been since 1972.

Regulation EC 1931/2006 which lays down rules on local border traffic at the external land borders of the Member States may be relevant. It is inspired by the interest of the enlarged Community to ensure that the borders with its neighbours are not a barrier to trade, social and cultural interchange or regional cooperation.

The Regulation goes on to state that an efficient system for local border traffic should consequently be developed. And that the local border traffic regime constitutes a derogation from the general rules governing border control of persons crossing the external borders of the Member States of the EU.

And in Gibraltar’s case, it will be easier to operate than in all the other places it operates. In Gibraltar, it is only opening up to a further 2.5sqm.

Furthermore, there are already immigration controls on travel between Gibraltar and the UK, therefore free movement at the Gibraltar-Spain border will have no impact on the UK itself.

(b)              A closer trading relationship with the UK.

For Gibraltar, access to the UK market is essential to its economic sustainability. We are grateful that the UK’s Secretary of State for International Trade, Dr Liam Fox, has committed to maintaining Gibraltar’s access to the UK market for financial services.

We are already engaged in discussions with the UK on this front. Things we are looking at include, as aforementioned, the maintenance of the 2001 Order in Council that allows for the freedom to provide financial services between the UK and Gibraltar, enhanced cooperation in the online gaming sector, consideration of other service sectors that could form the basis for new trading relationships, the conclusion of a Double Taxation Agreement, the application of the EU Parent/Subsidiary Directive (or similar mechanism). Progress on all of these fronts is very important to Gibraltar.

(c)              To form an integral part of the new UK-EU Agreement.

The basis for the success of part of Gibraltar’s economy is centred on its participation in the EU, as a gateway to Europe.

Gibraltar cannot be left out of any such deal.

It is for the UK negotiating team, with which Gibraltar expects to be working closely via the JMC and directly, to negotiate the best deal possible, including for Gibraltar.

Given Gibraltar’s specific circumstances, there may be a need for a differentiated treatment of Gibraltar within the over-arching UK/EU settlement, and an ability to continue to accommodate local practical prerequisites to ensure seamlessly the sustainability of the Gibraltarian economy through a viable:

(a)              free flowing land border;

(b)              construct for trade in goods with the EU; and

(c)              mechanism for access to the EU single market for the provision of services.

(d)              To be given the option to form an integral part of the new trade agreements that the UK will enter into with third countries.

This will allow Gibraltar an opportunity to try to compensate for any loss suffered by BREXIT and may allow us to expand our economy in different sectors and geographical areas.

6.              You have suggested that Gibraltar could seek an “associate-style status” with the EU after Brexit.

Is this still something you hope to achieve, and can you elaborate on what this might look like?

              Do you sense that the EU would be receptive to a special arrangement for Gibraltar, given that Gibraltar already has differentiated arrangements under the UK’s current EU Membership?

It is difficult to speculate today what the future relationship between Gibraltar and the EU will be. Much will depend on the agreement that the UK will itself reach with the EU at the end of the Article 50 negotiation.

What is clear is that Gibraltar expects to form an integral part of that agreement. Based on the numerous meetings I have now held with UK Government Ministers and officials I am confident that is likely to be the case.

It is true that Gibraltar already has differentiated arrangements under the UK’s current EU membership. These are designed to cater for the specific circumstances of Gibraltar. As aforementioned, the 1972 Act of Accession excludes Gibraltar from EU policies concerning trade in goods. It is important to bear in mind that today, as in 1972, there is no manufacturing industry in Gibraltar and it may be that the same reasons that justified those exceptions in 1972 prevail today.

It is also true that there currently exists a wide range of associate style status between a number of territories and the EU. These include territories which form part of Member States or independent microstates.

We will look at any solution, method or status that best protects Gibraltar’s economic stability.

7.              We understand that Gibraltar will not take part in the new UK-Overseas Territories Joint Ministerial Council on European Negotiations.

What structures are in place for you to communicate Gibraltar’s views and concerns to the UK Government?

Are you satisfied with the level of bilateral engagement you have had to discuss the implications of Brexit so far?

Do you have a sense of how Gibraltar might be involved in negotiating any future trade deals with the EU and the rest of the world after Brexit?

The Gibraltar Government is in regular contact with the UK Government to communicate our views and concerns with BREXIT.

The first meeting of the JMC (Gibraltar EU Exit Negotiations) the UK-Gibraltar Ministerial Forum on EU Exit, took place on 7 December 2016, with Department for Exiting the EU and Foreign and Commonwealth Office Ministers taking part. This followed a meeting the Parliamentary Under Secretary of State at the Department for Exiting the EU (Mr Robin Walker) chaired with me and business and union representatives on 1 November 2016.

I have had regular meetings with UK Ministers and parliamentarians.

In addition, officials of both governments continue to be in frequent contact.

I am entirely satisfied with the level of bilateral engagement I have had to discuss the implications of BREXIT so far

I sincerely do believe that Gibraltar will be fully involved in negotiating any future trade deals with the EU and the rest of the world after BREXIT. I expect the level of contact to increase as the negotiations commence.

8.              Are there any other issues that you wish to raise that we have not discussed today?

A.              EU Funding.

B.              The Gibraltar University.

C.              Bullet point Conclusions.

A.              EU Funding.

EU funding has been a very important part of the development of the Gibraltar economy.

It is important to highlight the fact that Gibraltar stands to receive a total of nearly 60 million euros in EU funding since the first allocation of such funds was made in 1990. This includes the current programme.

A total of 75 public sector projects and 202 private sector projects in Gibraltar have benefitted from EU Structural Funds over the years.

The funding programme for Gibraltar has come from the European Regional Development Fund (ERDF), the European Social Fund (ESF) and Interreg. The ERDF is the new strategic programme for the use of structural funds in Gibraltar. The objective of the scheme is to stimulate economic development which in turn encourages job creation. The theme of the existing ERDF 2014-2020 programme centres on enhancing the competitiveness of small and medium enterprises and supporting the shift towards a low-carbon economy in all sectors. The current programme provides 5.68m euros in ERDF and 4.81m in ESF. There is a provision of 0.5m each in SUDOE and MED.

The estimate is that by the end of 2020 Gibraltar will have received over 32 million euros under the ERDF, nearly 18 million under the ESF and about 9 million under Interreg. The Interreg funding includes programmes for cooperation with other parts of south west Europe or the Mediterranean, known as SUDOE and MED. There have also been specific programmes for funding projects which straddle EU with non-EU territories and these have been granted for cooperation with Morocco in the past.

The Konver programme which has covered the conversion of assets from military to civilian use is also particularly relevant to Gibraltar.

This is particularly relevant because EU funds have historically assisted the economy of Gibraltar as it made the transition from an economy which was 60% based on defence spending to an open private sector economy which competed with the outside world. A number of former military facilities in the old naval dockyard, for example, were converted into the Europa Business Centre with the assistance of the European Union and another industrial park was built at Lathbury Barracks. The Casemates area, which included historic military accommodation and facilities, was modernised and became shops and restaurants. Other public sector projects that have benefited from EU funding include the Alameda Gardens, Commonwealth Park, Tourist sites and the City Hall refurbishment.

There is a long list of private sector projects that have done very well from EU funding. This includes businesses involved in freight forwarding, light industrial activity, eco-tourism, broadband services, medical and health services, entertainment and fitness.

The Government’s records show that 3615 jobs have been created or safeguarded as a result of the EU funding projects and this is estimated to increase further to 5004. There have also been over 5000 qualifications gained as a result of these funds.

This funding stream should not be put at risk. The European Union has worked well for Gibraltar in this regard.

B.              The University of Gibraltar.

The Vice-Chancellor of the recently established University of Gibraltar has written directly to the Government of Gibraltar setting out her concerns about the implications of BREXIT for the University. A copy of her letter is at ANNEX 10. The Chancellor of the University is Lord Richard Luce.

C.              Bullet-point Conclusions.

Some further or repeated bullet point conclusions for the Committee to consider:

• Gibraltar extended rights to Spanish citizens in 1984 in advance of Spain joining the EU. This is something which did not happen in the rest of the UK at the time. We acted in good faith and in good will.

• The payment of pensions, uprated, to Spanish pensioners, under EU rights.  Note the provisions of the Córdoba Agreements and how these favoured Spanish citizens in the region and the Spanish failure to adhere to them.

• Abrogation of Córdoba Agreements and the immediate tabling of Joint Sovereignty.

• Recognition that Gibraltar’s situation is unique and cannot be overlooked in the process of negotiation: which is the case already in our view, but cannot change as the exigencies of negotiation develops.

• The Gibraltar Constitution requires a unique solution.

• There are serious economic implications arising from BREXIT which need to be balanced with ensuring Gibraltar is exposed to all the opportunities it thinks may be beneficial for it in order to make good loss arising from removal from the Single Market.

• Recognition that EU membership has helped normalise relations between Gibraltar and Spain, fostered business opportunities and employment for both sides and that therefore the EU has a role to play in supporting a good outcome that promotes regional cooperation and well-being. The Sovereignty claim has straddled dictatorship and democracy. 

• Gibraltar’s future relationship with the EU is a matter to be decided between the UK and Gibraltar with the EU and not in any bilateral talks with Spain. Spain’s role is as a remaining Member State, but it has no other role arising from its status as a claimant over the Sovereignty of Gibraltar.

• Bilateralism does not fit AND IS NOT COMPATIBLE with the Constitution of Gibraltar and the way matters related to the EU remain of the competence of HMGOG: Immigration and Customs in particular.

• BREXIT should not be used or act in any way as leverage to push Gibraltar into any political situations that it does not want.

• A proper free flowing frontier for day/cross-border workers and tourists (as distinct from the EU’s free movement of people as now understood) is an essential.  At the very least, the old Treaty of Rome style.

• Gibraltar has always had a different status in the EU and in so far as it wishes to should be able to enjoy any opt in (eg Schengen) or opt to remain. These are opportunities that it can, with UK’s support, obtain in the discussions with the EU. Where possible, the UK should negotiate with the EU options that reflect the wishes of the people of Gibraltar and which secure the best co-operation and neighbourly relations (including EU funded co-operation) with those territories that surround it namely Spain and Morocco.

• Note the work done by us with Morocco since our election in 2011, including the grant of citizenship to Moroccan nationals resident in Gibraltar for over 30 years. The UK must now support the work being done by Gibraltar in Morocco.

• Access between UK and Gibraltar at all levels including a direct mutual access to their markets should be expanded as widely as possible to balance the deficit that will be created by Gibraltar’s departure from the EU.

• The UK must be ready to play hard ball with Spain if Spain plays hardball with Gibraltar.

• Common sense must prevail and we must deal with each other with respect and in the best interest and for the mutual benefit of each other's citizens, leaving unrealistic, predatory and aggressive sovereignty claims to one side.

• The UK is the leading country when it comes to tourists visiting Spain and tourism is credited as one of the key industries that took Spain out of recession.

• The UK has a lot of aces up its sleeve in this negotiation which I trust it will not need to deploy to defend the interests of the loyal British citizens of Gibraltar, but if Spain plays hard ball, in this instance the UK cannot be shy to play those cards.

• Gibraltar is constitutionally responsible for it immigration, it has controls between air communication and should be allowed to have its own free movement agreement with the EU.

• It is in the interests of all that Spain should return to the trilateral process of talks to engage in discussions on how the practicalities post Brexit relationship are best managed between all three jurisdictions and the policy of co-operation encouraged.

• Cross border policing and co-operation should be a priority to ensure terrorists and criminals cannot benefit from uncertainty.

• Gibraltar is no longer a colony and its constitutional development must continue to reflect that.

HM Government of Gibraltar

10 January 2016