Spain wants 'wins' out of Brexit leverage on Gibraltar

Ever since the day in April 2017 when the European Union granted Spain a veto over how the Brexit divorce deal should apply to Gibraltar, a political time-bomb was placed directly under the negotiations.

The veto means that London and Madrid, in consultation with Gibraltar, must agree separately how and if the Brexit deal should apply to the Rock.

If anyone had any doubts that Spain would use their veto, they only need to look at the issue of Gibraltar airport which is currently blocked from Europe’s ‘Open Skies’ because Spain has refused to allow it to be covered by EU law.

The result is an £84 million white elephant with 16 check-in desks that handles three or four flights a day. The Spanish side of the airport, which was originally envisaged, has never been built.

Since Theresa May has repeatedly been clear that she will not leave any part of the “UK family” behind - a pledge she repeated again on Monday - the veto applies effectively to the entire Brexit deal, if she wants progress that includes Gibraltar.

This hands massive leverage to Madrid which it was always naive to think they would not use to their advantage. So what does Spain want? And what can it reasonably expect to get?

The Politics

These are always tricky with Gibraltar, but when the Socialist Pedro Sanchez ousted the conservative Mariano Rajoy last June, there was hope that things might go more smoothly.

Privately Gibraltar’s political establishment had better historical links with the Socialists, allowing the creation of a back-channel between the Rock’s first minister Fabian Picardo and Mr Sanchez, according to well-informed sources.

Even so, there are continued fears that entrenched hardliners in Spain’s foreign ministry will continue to look to derail any compromises on the part of the Sanchez government it deemed too soft.

Mr Sanchez is under pressure domestically for failing to make gains in the talks ahead of regional elections in Andalusia - from which thousands of Spanish workers commute daily to the Rock - on December 2.

On the Gibraltar side it has been noticed in recent months that every time a deal is close, elements of Spain’s Guardia Civil re-stoke tensions by, for example, forcing a British submarine to fire warning flares at a Spanish police boat last September.

In the end, all the battles come back to sovereignty. Gibraltar was ceded to Britain in 1713 in the Treaty of Utrecht. In 2002 Gibraltar rejected a proposal for joint UK-Spanish sovereignty by a majority of 98.9 per cent against, but Spain continues to press its claim.

However even before Mr Sanchez took power, Spain was careful to say that it would not seek to use the Brexit negotiations to push for sovereignty over Gibraltar, but no-one should have been fooled that it would not use its leverage to gain some ‘wins’ - whether now, or in the future.

The current battle with Brussels is Spain’s effort to maintain that leverage as the trade discussions progress after Brexit, cognisant that at that stage they will come under much less pressure from EU states wanting to move on a deal.

So what might those ‘wins’ be?

The draft Withdrawal Agreement refers to ‘Memoranda of Understanding’ between Spain and the UK to be concluded this month, but tellingly the date is left blank since both sides have yet to agree the deal.

It is to cover issues relating to citizens' rights, tobacco smuggling, cooperation on environmental matters and a treaty on “taxation and the protection of financial interests”.

For Gibraltar, all concessions on these areas are seen through the prism of Spain’s desire - however incrementally - to impinge on the Rock’s sovereignty.

The negotiations remain highly sensitive and have been some of the best-kept secrets of the entire Brexit negotiation, with Britain and Spain declining to share details with the EU’s leaky bureaucracy and other EU states. But some clarity has emerged over Spain’s key targets.

Tax harmonisation

Spain has long resented what is sees as Gibraltar’s status as a ‘tax haven’ - a description not accepted by Gibraltar’s government - and wants to see a levelling of the playing field on tax across the border.

At present Gibraltar has no VAT and corporation tax levied at 10 percent compared with 25 percent in Spain - a gap that Madrid is determined to narrow to prevent tax evasion by Spanish residents.

Gibraltar reject these claims, arguing that Spain itself has territories where VAT does not apply (the Canary Islands, and the North African possessions of Ceuta and Melilla) and it will not give ground on this point.

On corporation tax it is happy to share information with Spain, but says it will not have its rates dictated to it by Madrid.

The Airport

This is a very sore point, with talks breaking down last May over Spanish demands that their Guardia Civil police be stationed at the airport in a move towards joint control - something flatly rejected by Gibraltar.

One ideas floated was a model along the lines of the jointly owned and operated Swiss-French “EuroAirport” near Basel in Switzerland. However Gibraltarian officials point out that the difference is that France and Switzerland do not have a claim over the airport territory, as Spain does over the Isthmus where Gibraltar’s airport is situated and which it insists was not conceded in the Treaty of Utrecht.

One other idea is that some kind of EU presence might be agreed between the two sides, linking the two jurisdictions. “But Spanish police we will never have,” declares one source on the Gibraltar side close to the talks.

Navigation rights

The Spanish side is understood to want some form of joint supervision across the waters in the Bay of Gibraltar which is currently divided by a median line between the Gibraltar and Spanish sides.

Gibraltar is nervous about setting precedents that would undermine its sovereign claim to those waters, but recognises that a fair amount of co-operation already takes place in terms of tackling smuggling. This should not be a deal-breaker, if a form of words can be found.

Tobacco

Cigarettes are significantly cheaper in Gibraltar than in Spain, where an average packet costs around €4-5 compared to less than €3 in Gibraltar. Spain wants to reduce the discrepancy.

Gibraltar has said that it accepts that, over time, prices will need to harmonise and that all exchequers need to wean themselves off tax revenues from tobacco. The government has already raised prices in recent years, but says that any changes must be phased in. Again, this issue should not be a deal breaker.

Conclusion

Spain may have declined to link its longstanding sovereignty claims to Gibraltar directly to the Brexit divorce deal, but no-one should be under any illusion.

Brexit hands significant leverage to Spain to prosecute its ambition to bring Gibraltar closer to its orbit and - as it has shown over previous rows on the airport - it is prepared to use that leverage patiently and for long periods of time.

So even if a deal is done to get this divorce deal over the line (probably by attaching an annex or clarification to the Political Declaration making clear Spain has a veto over how the trade discussion applies to Gibraltar) it is clear that this issue is not going away.