Select Committee on Foreign Affairs Minutes of Evidence

Memorandum submitted by the Chief Minister, Government of Gibraltar

A. THE CURRENT TENSION

  1. The actual commencement of the current tension between Gibraltar and the Spanish Government can be traced back to a recent fishing dispute and its resolution. This has led to Spanish reaction on a broad front, as follows:

(1)  Measures at the border, leading to inordinate delays.

(2)  Accusations against Gibraltar of non-compliance with EU directives.

(3)  Accusations against Gibraltar of drug smuggling, drug money laundering and all manner of serious criminal behaviour and related accusations against Gibraltar's financial services centre.

(4)  Accusations (persistently articulated in the Spanish press by Spanish Ministers) that we are a "parasite" economy.

(5)  Threats to deny overflight rights over Spanish airspace to civil airliners flying to Gibraltar.

(6)  Threats (occasionally carried out) to withhold recognition of driving licences issued in Gibraltar to residents of Gibraltar.

(7)   Threats to withhold recognition in Spain of Companies incorporated in Gibraltar.

  Each of these issues (including the fishing dispute) is now considered separately and in detail. Although the public articulation of these threats and accusations can be traced in time to the resolution of the fishing dispute, they are part of a wider political agenda as can be seen from the document tabled by Sr Matutes in December 1997 by which he made the so-called "Matutes Proposals" on sovereignty.

The Fishing Dispute

  2. In 1991, the Gibraltar House of Assembly passed the Nature Protection Ordinance which (amongst many other nature protection measures both on land and sea) prohibited the use of nets and sea bed raking methods of fishing in Gibraltar's waters. Notwithstanding this, between 1991 and 1997, Spanish fishermen continued to fish in Gibraltar waters in breach of this law. Prior to 1997, the fishermen would stop fishing and leave Gibraltar waters when asked to do so by the Gibraltar law enforcement agencies thereby recognising their authority and British sovereignty, jurisdiction, and control over the waters. There were very isolated cases of arrest and prosecution.

  3. In 1997, Spanish fishermen began to refuse to leave when asked to do so by the Gibraltar authorities alleging that they recognised neither the validity of Gibraltar's laws nor the authority of Gibraltar enforcement agencies to enforce them because they were Spanish waters. This defiance, which was based on political argument, therefore raised the fundamental issue of sovereignty, jurisdiction and control of Gibraltar's waters. In addition, fishing was now taking place in more provocative circumstances in terms of numbers, size and location of boats.

  4. On 23 March 1998 and September 1998 I held meetings with the representatives of the fishermen in an attempt to persuade them to return to the status quo prior to 1997. The Gibraltar Government's position throughout was not that Gibraltar should now have zero tolerance policing of the Nature Protection Ordinance (which had not been the case between 1991 and 1997) but that both sides should return to the status quo that prevailed between 1991 and 1997. On Gibraltar's part, this meant returning to the pattern and style of enforcement of the Ordinance that had enabled some fishing to take place (but without the law ceasing to apply or its validity challenged). On the fishermen's part it meant a return to recognition of Gibraltar's laws and our ability to legislate for those waters as well as respect for the authority of the Gibraltar law enforcement agencies, thereby ending defiance of British sovereignty, jurisdiction and control over the waters. This was to be manifested by unquestioning obedience to orders to leave, whenever given, by the Gibraltar Police and other enforcement agencies. These were the fundamental and politically most important aspects of the matter for Gibraltar. The Gibraltar Government made several public statements to this effect that this was its position. For their part, the Spanish fishermen and their representatives made statements to the effect that they were only fishermen interested in earning a living and not concerned with sovereignty issues and that they were willing to respect our authority in the waters.

  5. In October 1998, there were a series of confrontations in the waters around Gibraltar. There was widespread and persistent incursions into British waters not just by Spanish fishermen but by Spanish Guardia Civil and Customs boats and helicopters purporting to "protect" them. The RGP and MoD in Gibraltar said that they were unable to deal with these incursions because they lacked appropriate resources, i.e., big enough boats. This situation continued to the end of January 1999.

  6. Discussion then ensued between HMG and the Spanish Government culminating in what was described by HMG as a verbal understanding that there should be a return to the more harmonious situation that prevailed between 1991 and 1997. Although, according to the British version, an attempt was made to particularise the "enforcement pattern" between 1991 and 1997, at no time was there any agreement to break Gibraltar's laws. On the 6 October 1998 the FCO said in a press statement that there was no question of the Foreign Secretary "making a deal" on fisheries with Sr Matutes or imposing a solution on the Government of Gibraltar. I attach as Appendix 1 hereto a copy of a letter dated 5 November 1998 addressed to me by Joyce Quin which is self explanatory. This letter was published with the Minister's approval.

  7. For its part, the Spanish Government publicly claimed an agreement to allow fishing and issued a note on the 3 November 1998 stating the terms upon which they claimed having reached a "compromise, understanding or agreement" with the United Kingdom on 5 October 1998. This note, and an English translation, are attached as Appendix 2. This note stated inter alia the terms upon which fishing, in what they described as "the disputed waters", was allowed. This was in contradiction to what the UK Government had itself publicly stated was the verbal understanding reached between the two Foreign Ministers. The Spanish Government was basically asserting that Spanish fishermen could fish with impunity despite the existence of the law of Gibraltar prohibiting such activity as if they were (subject to certain limited and defined conditions) exempted from the Nature Protection Ordinance.

  8. Despite the clear contradictions between the published British and Spanish versions of the "understanding" and despite the fact that RGP and MoD assets in Gibraltar (none of which are constitutionally available to the Gibraltar Government) were being deployed against the Spanish fishermen, the Spaniards persistently and aggressively blamed me for ignoring and for undermining the "understanding" between London and Madrid.

  9. The situation at sea continued to deteriorate throughout most of December 1998 and January 1999 culminating in the arrest of a Spanish fishing vessel on 27 January 1999 and the seizure of its nets. Following this, the Spanish fishermen carried out a blockade of the land frontier on the 28 January resulting in a day long closure of the frontier and serious public order incidents on both sides.

  10. In a press statement issued on 29 January 1999 the FCO called for this problem to be resolved through local dialogue. This is attached as Appendix 3. Given the obvious discrepancies between London and Madrid's versions of their understanding, the rapidly deteriorating law and order situation, the damage that was being done to cross border relations and that the respective aspirations of the Gibraltar Government and the Spanish fishermen (as summarised at paragraph 4 above) appeared to be reconcilable and compatible, the Gibraltar Government decided to act.

  11. On 29 January 1999, the Gibraltar Government took the initiative to revive discussions directly with the representatives of the Spanish fishermen. The Government's objective was to unambiguously agree what constituted, for both parties, a return to the status quo between 1991 and 1997 and the implications of that. This was achieved and a written understanding was reached on the 3 February 1999. A copy of it and an English translation is attached as Appendix 4. Both sides expressed satisfaction with the outcome. The UK Government welcomed the understanding. Attached as Appendix 5 is a copy of an FCO press statement dated 3 February 1999 to that effect. The Spanish Government, for its part, questioned the competence of the Gibraltar Government to enter into any form of understanding or agreement and regarded it as a provocative attempt to overrule the agreement which they claimed had been reached by the two Foreign Ministers in October 1998.

  12. Following the announcement of the understanding reached between the Gibraltar Government and the Spanish fishermen, the Spanish Government amongst other measures, introduced restrictions at the land frontier.

Frontier Restrictions

  13. As a result of restrictions imposed by the Spanish Government at the land frontier vehicles travelling from Gibraltar into Spain have, since 29 January 1999, been subjected to lengthy delays which persist, on average, of between one to three hours. In their worst moments they have reached six hours.

  14. These delays are artificially created and are completely unnecessary. Up to 28 January 1999, the usual average waiting time per vehicle leaving Gibraltar to enter Spain fluctuated from 10 to 30 minutes depending only on volume of traffic. Occasionally there were longer delays. After that date, the time range for delays has been between 46 to 196 minutes (on occasions with maximum peaks of five to six hours). The overall average per vehicle was just under 1½ hours.

  15. The movement of vehicular traffic has fallen by around two-thirds, down from an average of 5,225 to 2,116 vehicles per day. This dramatic fall from vehicular movement, which is a result of the prolonged delays, makes the increase in waiting time even more extraordinary. The average rate of flow has been 37 vehicles every half hour compared to a pre 29 January 1998 figure of 150.

  16. The restrictions are also being applied in a discriminatory manner. Between 1700 and 1800 hours, which is the peak time when Spanish frontier workers are returning to Spain, the Spanish authorities dramatically hasten the flow to minimise the delay to Spanish workers. Appendix 6 contains detailed statistics analysing the situation up to 21 March 1999.

  17. One of the arguments deployed by the Spanish Government at the start of the restrictions was that these measures were necessary because of Gibraltar's non-membership of Schengen and the Customs Union. None of these excessive frontier controls, be they for vehicles or pedestrians, operate between the port of Algeciras (which is an external frontier) and Morocco nor do they operate at the border between Ceuta (Spanish territory) and Morocco. Moreover, none of these controls are customary anywhere in Europe, not even between an EU Member State and a non EU Member State. It is therefore clear that Spain is using Gibraltar's non-membership of Schengen and the Common Customs Union as a pretext to apply politically motivated restrictions at the border. Statements by Spanish Government Ministers make no attempt to conceal this fact. The Gibraltar Government believes that this action by Spain constitutes a flagrant and insufficiently challenged breach by her of her EU obligations and Gibraltar's (and other EU nationals') right to free movement of people within the community across what is an internal EU border.

  18. Suggestions that the position is now "much better" because the queues are down to one and a half or even one hour, are dangerous and misleading, for the following reasons:

(1)  It ignores the fact that all degree of unnecessary, artificially created delay is unacceptable. These excessive delays are being caused, amongst other things, by a reduction in the customs channels of the usual two (three at peak times) channels, to one.

(2)  It ignores the fact that the volume of vehicular traffic into Gibraltar (and therefore out of Gibraltar) is greatly reduced (currently 40 per cent of January levels) which is, of course, the Spanish objective.

(3)  It ignores the fact that the relevant criteria is "flow rate" since this takes into account fluctuations in volume. The Committee will be able to assess these "flow rates" at Appendix 6.

(4)  Risks allowing the Spaniards to interpret such remarks as licence to establish the current thoroughly unacceptable position as the new "norm" at the border.

  19. Talk of the current position and the danger of allowing it to become the new "norm" masks the fact that even the pre-current tension regime at this border has always been abnormal by any European standards. Spain has the obligation to deploy sufficient resources at the border to enable her to carry out frontiers controls without undue delay. Yet:

(1)  There has always been a single immigration officer (requiring a single file) for vehicular traffic;

(2)  There is no red and green customs channel system. Every car is subjected to examination.

  20. It is unacceptable that Spain be allowed to use the frontier as a political instrument. Spain has EU obligations and we and others have EU rights of freedom of movement and economic rights which are being interfered with. Both HMG and the EC Commission must be much more vigorous and persistent in achieving enduring and continuous Spanish compliance in this respect.

Accusations against Gibraltar of non-transposition of directives

  21. Initially, the Spanish Government linked the frontier restrictions to the fishing dispute; then it attempted to justify them by reference to allegations of non transposition of EU Directives; when these were shown up to be false the pretext became allegations in relation to money laundering and financial services.

  22. The Spanish Foreign Minister has attempted to justify the restrictions on the basis that Gibraltar has not met its Community obligations. In a letter to the President of the European Commission, the Spanish Foreign Minister complained that a total of 66 EU Directives have not been implemented in Gibraltar. This is not true.

  23. On 11 February 1999 the UK Permanent Representative to the European Union, Sir Stephen Wall, wrote to the European Commission President's Chef de Cabinet (in response to the Spanish Foreign Minister's letter to the President of the Commission) pointing out that of the 66 measures alleged by Spain not to have been implemented in Gibraltar.

—  Thirty-nine had in fact been implemented;

—  twelve were inapplicable because of Gibraltar's legal status within the EU;

—  two do not require transposition because Gibraltar is too small to have the kind of institutions to which they apply;

—  three are listed twice in the Spanish letter;

—  two appear not to exist;

—  leaving eight which were in the final stages of transposition.

  24. Of the eight (then) outstanding items four (relating to aviation noise at the airport) have subsequently been transposed. This is, in itself (and anecdotally in this context), ironical because Spain systematically seeks Gibraltar's exclusion from all aviation measures (see paragraph 98 below) and at the very time that we were required to transpose these four aviation noise directives, Gibraltar was excluded under pressure from Spain, from a fifth aviation noise directive (the "Hush Kits Directive" which is sister to one of the four).

  25. The British Ambassador to Madrid, Sir Peter Torrey wrote to the Spanish national newspaper, El Mundo, confirming these facts.

  26. The Gibraltar Government welcomes and appreciates HMG's robust defence of Gibraltar's fine record in this respect but would wish it to be done on a more widespread and public European basis (as Spain has done with the accusation) so that Gibraltar is not unfairly tainted as "non complying" Europeans in the minds of other Member States and European public opinion, which is Spain's objective in this regard.

  27. The reality of the matter is that Gibraltar's EU directives transposition record is now very good. We devote a massive (by reference to our size) amount of financial, administrative and legislative resources to directives implementation. In his letter of 11 February 1999 to the Commission, Sir Stephen Wall said:

"As the Commission is aware, Gibraltar has made strenuous and successful efforts to catch up with a backlog of implementation, which represents an enormous burden for Gibraltar's tiny public administration . . . The facts speak for themselves."

  28. In contrast, Spain's own implementation record appears to be less good than Gibraltar's. According to information provided by the EC Commission there are 25 infringement proceedings pending against Spain for non implementation of EC Directives.

  29. Even if the facts were as Spain alleges (which is not the case) it is not open to Spain within the established EC legal order to "take the law into her own hands" and impose unilateral restrictions on Gibraltar in response to alleged non implementation by Gibraltar of EU Directives. It is trite that non compliance by one member state does not entitle another also to withhold compliance in the same or any other area, still less to impose restrictions by way of sanction. It is for the EC Commission to bring about compliance by member states with their obligations by initiation of infraction proceedings against the Member State in question (in our case, the UK).

Accusations relating to drug smuggling, drugs money laundering and all manner of serious criminality and accusations against Gibraltar's financial services centre

  30. Spain makes all manner of unfounded and unsubstantiated allegations against Gibraltar in respect of these matters with the objective of tarnishing Gibraltar's international image and reputation, not just for general political purposes, but also to undermine the credibility and therefore success of our financial services centre.

  31. Gibraltar law fully implements all EU directives and UN Conventions on drugs money laundering. In addition Gibraltar complies with FATF taskforce guidelines.

  32. Furthermore, these laws are properly enforced. In 1996 the Gibraltar Government established the Gibraltar Co-ordinating Centre for Criminal Intelligence and Drugs to co-ordinate all intelligence amongst local law enforcement agencies. In 1993 Gibraltar established the Financial Intelligence Unit as the authority to receive and handle all "suspicious transaction" disclosures which are required to be made by local entities under the Drugs Trafficking Offences Ordinance.

  33. Like the UK (but unlike the rest of Europe) our laws criminalise the laundering of the proceeds of all crimes and not just drugs related crimes.

34. (1)  The United States State Department publishes annually a document called "International Narcotics Control Strategy Report". That report assesses the performance of all countries and territories in the international fight against drug money laundering. It categorises all territories as being one of:

(a)  Primary concern; or

(b)  Concern; or

(c)  Other.

(2)  Gibraltar is categorised as a country "of concern". Ironically, all of the UK, Spain, Jersey, Guernsey, Isle of Man, Liechtenstein, Luxembourg and Switzerland are categorised as countries of "Primary Concern".

(3)  Attached to this Memorandum as Appendix 7 [not printed] is the relevant pages of that report, including the country categorisations and the specific Section on Gibraltar. All countries have their own specific section. After describing the position in Gibraltar, the report says: "This further underlines the commitment of Gibraltar to adhere to international anti-money laundering standards."

(4)  The whole of the Report, which is a large document, is available on the internet at www.state.gov.

  35. At the UK Overseas Territories Association Conference that took place in London on 4 February 1998, Foreign Secretary Robin Cook when, commenting on Gibraltar's regulatory and legislative regime, said, "The Government of Gibraltar, for example, has recently introduced money laundering legislation to UK and EC standards. This has transformed Gibraltar's international reputation. The highest standards of regulation are the best guarantee for financial success and the biggest draw to investors".

  36. As the Committee may be aware the Government of Gibraltar has no constitutional responsibility for law enforcement matters. In addition, the Financial Services Commission (which regulates and supervises all aspects of Gibraltar's finance centre) is appointed by the Foreign Secretary and accounts to the Governor.

  37. Gibraltar cannot be expected to be the only place in the world which is totally free of criminal activity of this kind. There may therefore be isolated cases, as occurs in the UK, Spain and everywhere else. However Gibraltar has all the laws, structures and enforcement capability and the commitment to use them effectively, which render absurd and false the Spanish, politically motivated allegations. Even allowing for our smaller size, there is proportionately much less incidence of drug related crime in Gibraltar than in Spain and UK. Our commitment to play our full part in international efforts against drugs is questioned by nobody except Spain.

  38. Spain also asserts that Gibraltar is a source of physical drugs smuggling into Spain. This is wholly untrue. In fact, the reverse is true. All drugs which are consumed in Gibraltar enter Gibraltar from Spain. Nor is it true that Gibraltar based boats are engaged in drugs trafficking. There are no smuggling boats operating out of Gibraltar.

  39. The Spanish Prime Minister's office has recently sent Prime Minister Blair's office a dossier purporting to demonstrate Spain's allegations in this respect. I have seen this letter. It is riddled with inaccuracies and in no way supports the Spanish allegations. A reply in this vein has been sent by HMG to the Spanish Government. I have seen the reply, which has been shown to me in confidence. However, given the publicity that Spain has given to her false allegations, the damage that they cause Gibraltar and the corroborative effect that the Spaniards have sought to obtain from publicising the fact that she has submitted evidence to HMG, it is essential to Gibraltar's interest that HMG's reply and endorsement of Gibraltar's record be also given the same degree of publicity. International opinion is entitled to interpret (and will interpret) public silence on HMG's part as confirmation of the Spanish accusations.

  40. It is worthy of mention that while Spain alleges tolerance of money laundering activity in Gibraltar the only evidence cited are three cases which are currently the subject of prosecution with the help of the Gibraltar authorities.

  41. Our conviction that Spain's attacks against our finance centre are unobjective and politically motivated are supported by the following facts:

(a)  Spain attacks only the Gibraltar finance centre as if ours was the only one, or as if it were different to others or as if Spain were more adversely affected by Gibraltar's finance centre than by others. In fact, Gibraltar's finance centre is small compared to most others; unlike others ours complies with EU Directives in the area of financial services; unlike all others Gibraltar regulates the offshore company and trust formation and management industry; our money laundering regime is second to none; many more companies incorporated in other jurisdictions are used in Spain than companies incorporated in Gibraltar.

(b)  If Spain's complaints were objective she would pursue them against all finance centres and not just Gibraltar.

(c)  Spain has said that we can keep our finance centre in the context of a settlement of her sovereignty dispute.

(d)  Spain has sought permission from the EU Commission to establish her own offshore financial services centre in the Canary Islands.

  42. One of the very few financial services directives that Gibraltar has not yet transposed are the Fourth and Seventh Company Law Directives. These directives require the publication of financial balance sheets. The necessary preparations for their transposition are at an advanced stage. We envisage transposition within the next few months. However, as part of her campaign against Gibraltar, Spain alleges that our failure to comply with these directives makes ownership of these companies "opaque" and therefore prone to use in connection with money laundering and other nefarious activities by unidentifiable people. These allegations are erroneous. First, the Fourth and Seventh Company Law Directives do not require the public disclosure of the ultimate beneficial owner of shares in a Company. Like UK law (and the law in most other countries) Gibraltar law only requires disclosure of the registered owner of shares. The use of nominees is not peculiar to Gibraltar; second, the UK's other offshore finance centres that are not subject to the Fourth and Seventh Company Law Directives (Jersey, Guernsey, Isle of Man, Bermuda, Cayman Islands, Turks and Caicos, British Virgin Islands) do not require the publication of accounts. They are not thereby or therefore centres of drugs money laundering. The publication or non-publication of balance sheets is irrelevant (one way or the other) to the question whether a territory lends itself, or is particularly vulnerable to, money laundering.

43. Other Threats

  Spain has also threatened to withhold Gibraltar driving licences on the grounds that it does not recognise the Gibraltar Government's right to issue licences. The Gibraltar Government has issued driving licences which have enjoyed international recognition for many decades. The Spanish Foreign Minister has also stated that consideration is being given to prohibit civil airliners travelling to and from Gibraltar airport from overflying Spanish air space.

B. CO -OPERATION WITH SPANISH AUTHORITIES ON JUDICIAL AND LAW ENFORCEMENT MATTERS

  44. Part of Spain's campaign against Gibraltar is the lack of judicial and police co-operation in pursuing international drug trafficking and money laundering. These allegations are wholly untrue.

  45. Reference to the inability of the Spanish Authorities to investigate Gibraltar registered companies or residents of Gibraltar is totally inaccurate. If the Spanish Authorities wished to carry out such investigations they would only need to submit Judicial Requests to the competent Judicial Authorities in Gibraltar which in turn would be fully processed and supported by the Gibraltar Law Enforcement Agencies. This is no different to the manner in which many such requests from other jurisdictions are handled in Gibraltar. However, Spain refuses to recognise the jurisdiction of the Gibraltar Supreme Court and insists in submitting their judicial requests directly to the United Kingdom in manner that, given that Gibraltar is a separate legal jurisdiction, they are rendered invalid under the Laws of Gibraltar.

  46. I have asserted that Spanish allegations that Gibraltar law enforcement agencies do not co-operate with them are untrue. This allegation only ever emerges in the context of an intensification of Spain's political pressure on Gibraltar. I attach at Appendix 11 [not printed] the following documents which demonstrate the falsehood of the allegation:

(1)  Copy of Article in Spanish carried in May 1997 in the Spanish newspaper "Area". The headline reads "Captain of the Guardia Civil confirms that they receive daily collaboration from the Gibraltar police." The article relates to drugs smuggling and contraband.

(2)  Article in the Spanish Newspaper "Europa Sur" carried on 13 August 1998. The headline reads "Osuna highlights the collaboration of Gibraltar". Sr Osuna is the Spanish central governments's representative in the CADIZ province. A loose English translation is also attached.

(3)  Copy of a letter dated 29 January 1997 addressed by the head of the "Servicio de Vigilancia Aduanera" (Spanish Customs) to the Commissioner of the Royal Gibraltar Police. The letter reads, in translation, as follows:

  "Dear friend,

  It is my pleasure to convey to you my strongest gratitude, in my name and in that of my colleagues, on the occasion of the arrests effected of the vessels and, given that without your collaboration said operations would not have been possible.

  At the same time I would like you to pass these on to your officials, and in particular [three named officers] who are the ones who, together with my officers in the Provincial headquarters of Algeciras, do an inestimable job in the fight against drug trafficking.

  Finally, I hope that said co-operation continues at the highest level of efficiency and collaboration."

  The names of the vessels and of the officers have been deleted for security reasons.

  47. Furthermore, Gibraltar has applied to join the Egmont Group which is an international organisation of countries and dependent territories dedicated to co-operation in the fight against drug trafficking and money laundering. Spain has objected to Gibraltar joining this group (as many other dependent territories have done).

  48. Spain's refusal to recognise the jurisdiction of Gibraltar's Courts has affected, indeed undermined, the efforts of the Gibraltar law enforcement agencies to successfully prosecute drug and other criminal cases where the evidence of Spanish law enforcement officers has been required. In one case, a Gibraltar request in 1995 to extradite a British subject held in a Spanish prison, who was wanted in Gibraltar in relation to serious drug offences, was refused. It was only after intensive representations that the individual was eventually extradited not to Gibraltar, but to the UK. The Attorney-General has expressed concern that he has not been able to prosecute cases involving confiscation of assets because the substantive offences from which these assets derive have usually been committed in Spain and the Spanish authorities do not even reply to his requests for evidence. This lack of formal co-operation and recognition from Spain is an important factor inhibiting the fight against drug-trafficking in the area and clearly demonstrates the reverse of Spain's accusations against Gibraltar.

  49. The 1968 Brussels and 1971 Lugano Conventions on the enforcement of Court judgments throughout Europe were extended to Gibraltar with effect from the 5 November 1998. This followed a declaration by the UK on 31 July 1998 before the Swiss depository authorities.The Supreme Court of Gibraltar and Her Majesty's Attorney-General in Gibraltar were nominated as the competent authorities respectively. The extension of these Conventions to Gibraltar were of commercial and jurisdictional significance and contribute to the upgrading of Gibraltar's legal and administrative infrastructure which will help develop Gibraltar as an attractive location for foreign investment and business management. On the 1 October 1998, Spain lodged an objection with the Swiss authorities stating that the UK was not entitled to extend the Lugano Convention to Gibraltar unilaterally without the consent of the other contracting states and that this was a breach of the Convention and international law. The UK has explained that the extension of the Conventions is governed by general international law under the 1969 Vienna Convention and that their extension to Gibraltar is correct. The UK has rejected Spain's arguments. The Gibraltar Government is not aware whether this rejection has been formally notified to the Swiss depository authorities.

  50. The 1965 Hague Convention on the Service Abroad of Judicial Documents and Extra-Judicial Documents in Civil and Commercial Matters was extended to Gibraltar in 1970. The Gibraltar Registrar of the Supreme Court was designated by the UK as the competent authority for Gibraltar. The Hague Convention was subsequently ratified by Spain in 1987 without reservation or declaration relating to Gibraltar. On 1 September 1997, the Spanish Government delivered a Note Verbale to the Dutch depository authorities stating that Spain did not recognise the Supreme Court of Gibraltar as an authority and consequently any documents submitted by that body would be considered null and non-existent. The UK responded by lodging a Note with the Dutch authorities and by sending a further Note to Spain, both dated 30 December 1997, making it clear that it was for the contracting State alone to determine the extent of competence under the Convention. The UK has reassured the Gibraltar Government that it will continue to dispute any Spanish assertion challenging the competence of the Supreme Court of Gibraltar and that the UK does not accept the validity of the Spanish declaration.

  51. Accordingly, to the extent that Spain does not enjoy from Gibraltar the same degree of co-operation as other countries habitually obtain from us, this reflects, not any lack of procedures or willingness on Gibraltar's part, but Spain's own refusal to recognise and inter-act with Gibraltar's police and judicial authorities, an attitude in which Spain persists in priority to co-operation in Drug Smuggling and Money Laundering (about which she then criticises Gibraltar).

C. "THE MATUTES PROPOSALS"

  52. At the talks held in London on 10 December 1997 between the Foreign Secretary Robin Cook and the Spanish Foreign Minister, Sr Matutes under the Brussels Declaration of 1987, Sr Matutes tabled (in writing) the so-called "Matutes Proposals" on the future sovereignty and status of Gibraltar.

  53. The Matutes Proposals (which did not vary very substantially from similar proposals tabled in 1985 by the then Spanish Foreign Minister, Sr Moran) consist of three propositions:

(1)  An autonomous status for Gibraltar similar to the Spanish regional autonomies.

(2)  The option for the people of Gibraltar to acquire Spanish nationality or to enjoy dual nationality.

(3)  A transitional period of jointly exercised sovereignty (by UK and Spain) at the end of which Sovereignty of Gibraltar would be fully and definitively transferred to Spain.

  54. The proposals are wholly unacceptable to the people of Gibraltar since they are predicated on immediate joint sovereignty and inevitable full Spanish Sovereignty. The second proposition seeks to differentiate between the people and the territory, which is also unacceptable. The people of Gibraltar, like all other colonial peoples before them, have rights, in relation to and in connection with, the territory of Gibraltar which is our homeland. Furthermore, the proposals completely ignore and override the right of the people of Gibraltar to decolonisation by the application of the principle of self determination.

  55. The British Government's position on 10 December 1997 in response to the proposals was that they could remain on the table but given HMG's obligation to respect the wishes of the people of Gibraltar, HMG could not contemplate change without the consent of the people of Gibraltar.

  56. Since 10 December 1997 HMG position has, I believe, been to say that the proposals are being considered and a response would be given at the appropriate time (i.e., next Brussels Agreement talks—now scheduled for sometime after PM's bilateral summit with Sr Aznar in April).

  57. On 15 January 1998 I wrote to the Foreign Secretary thanking him for his robust commitment to respect the wishes of the people of Gibraltar on the question of sovereignty and urging him to reject the Matutes proposals which were completely unacceptable to the people of Gibraltar. I expressed to the Foreign Secretary the view that leaving the proposals on the table unrejected would send Spain the erroneous signal that there is objective merit in them, still less prospect of success if they should persevere with the proposals. I also expressed my view that failure to reject the proposals will keep Spanish expectations at a level that will not in fact facilitate the management of this problem, still less the process of searching for a viable and constructive way forward. I wrote again on 18 December 1998 to the Minister of State at the FCO, Joyce Quin, urging a response to the proposals in the same terms as the Moran proposals (of 1985) were rejected by HMG in 1993.

  58. On 17 December 1998 the House of Assembly unanimously passed a motion calling on HMG to reject the Matutes proposals.

  59. A public petition signed by 12,499 people calling for the rejection of the Matutes Proposals was handed in at No 10 Downing Street on 10 December 1998.

  60. The Matutes Proposals have not yet been rejected by HMG.

  61. At the time of presenting his proposals in December 1997, Senor Matutes recognised that Spain did not want a solution to the problem of the sovereignty dispute which was imposed on the people of Gibraltar. That seemed to be a most welcome acknowledgement that the principle of democratic consent was paramount. What is disappointing is that having declared himself in favour of democratic consent, Senor Matutes does not then accept the fact that the proposals are rejected by the people of Gibraltar. Consent must be freely given. Adherence to the principle of consent must mean acceptance of the democratic will, whatever the outcome. I believe that in re-tabling these proposals, (which had been rejected by the previous British Government) the Spanish Government was seeking "a second bite at the cherry" with the new Government in the UK.

  62. When Sr Matutes tabled his proposals on 10 December 1997 he attached to them a clear "health warning". In the same document Sr Matutes said that the new situation brought about by a solution to the sovereignty issue would see an end to the current tensions which are the inevitable and direct consequences of Spain's permanent sovereignty claim. He also said that these political tensions evidently prevent Gibraltar from contemplating and planning a prosperous future on account of the lack of support and co-operation, both at a national and European level, which in other circumstances would be available from Spain.

  Sr Matutes added that in the event of a negative response to his proposals, or an indefinite blockage of them, the status quo would inevitably persist, which does not augur well either for Gibraltar or for Anglo-Spanish relations. Spain, he said, would never abandon its sovereignty claim nor its efforts to recover it, which would continue to manifest itself, as follows:

(1)  Spain would be obliged to continue to impede Gibraltar from living and prospering "at Spain's expense" and especially at the expense of the neighbouring Spanish region.

(2)  Spain would remain vigilant to counter-act any move to decolonise Gibraltar; this would be especially intense in the ambit of the European Union.

(3)  Spain would deny recognition, in a European Union context of identity cards, passports and driving licences issued in Gibraltar, which he said could result in problems to Gibraltarians in the exercise of their right to free movement.

(4)  Spain would oppose any modification of Gibraltar's current constitutional status that was contrary to the course established by the Brussels Agreement.

  63. Sr Matutes's proposals were presented with a warning that if Gibraltar did not accept them, "the screws would be tightened" against Gibraltar. Indeed, when presenting the proposals to the Foreign Affairs Committee of the Congress of Deputies on 18 February 1998, Sr Matutes warned that the Spanish offer was not indefinite and that if there was deadlock in the negotiations, Spain would be in a position to "carry to extremes" controls on Gibraltar. He was quoted as saying "we are not at the stage of applying these restrictions but of demonstrating our good faith and explaining the status that we are offering to the Gibraltarians".

  64. Following a meeting held on 24 November 1998 in Madrid between the Spanish Foreign Minister and representatives of the political parities represented in the Spanish Congress, it was revealed that the Spanish Government was considering implementing "Plan B" which was aimed at isolating Gibraltar. The Spanish Foreign Minister stated that the diplomatic process had been exhausted and that "Plan B" would involve a series of restrictions at the Gibraltar frontier and, if this did not succeed in pressuring the people of Gibraltar to negotiate over the Matutes proposals, it would be followed by further measures to cut off Gibraltar.

D. DIALOGUE RELATIONS WITH SPAIN

  65. It is the policy of the Gibraltar Government to seek dialogue with Spain, at all its political and administrative levels. Such dialogue would serve to explore ways of putting relations between Spain and Gibraltar on a more constructive footing by seeking confidence building and trust between the parties leading to a process of mutual co-operation on a broad range of issues.

  66. This has led to frequent dialogue with local Governments in adjoining Spanish municipalities and several meetings with the Andalucian regional Government.

  67. In December 1998 the Gibraltar Government signed technical co-operation agreements with the nearby Spanish municipality of Los Barrios on the areas of economic co-operation, tourism and education and culture.

  68. Although the Gibraltar Government would wish to participate in meaningful and constructive dialogue with the Spanish Central Government, it has not yet been possible to achieve this.

  69. The Gibraltar Government is not willing to enter into negotiations on the issue of sovereignty, nor to enter into discussions on the basis of proposals (such as the Matutes Proposals) which are predicated on the transfer of sovereignty to Spain, however much that eventuality may be deferred.

  70. Furthermore, the Gibraltar Government wishes to participate in dialogue on a basis that is not exclusively bilateral between London and Madrid, but rather allows the people of Gibraltar to participate with their own voice in the form of their elected Government who could thus speak for and represent the people of Gibraltar. Bilateral dialogue between the UK and Spanish Governments recognises and concedes the fundamental Spanish position that Gibraltar is a bilateral matter between the UK and Spain in which the people of Gibraltar have no rights and in respect of which the people of Gibraltar's wishes are not primordial.

  71. The fact that only two of the parties (the UK and Spain) are sovereign independent states does not necessitate the denial of a separate voice to the people of Gibraltar at talks concerning Gibraltar.

  72. The Government of Gibraltar seeks to engage Spain in open-agenda dialogue to establish good, constructive, friendly, relations with Spain and to maximise the possibilities for co-operation with Spain in all areas. However, Gibraltar is not willing to do so on terms that requires us to prejudice or concede our British Sovereignty, nor that requires us to accept Spanish Sovereignty over Gibraltar.

E. CONSTITUTIONAL REFORM

  73. Spain's sovereignty claim to Gibraltar does not (and should not be allowed to) operate to deny Gibraltar the right to decolonisation, which is the inalianable right of all colonial people.

  74. The United Nations recognises only the following four methods of decolonisation:

(1)  Independence.

(2)  Free association with an independent state.

(3)  Integration with an independent state.

(4)  A status that suits the circumstances of a territory and is freely chosen by its people (the so-called "fourth option").

  75. HMG rejects Independence as an option for Gibraltar because it alleges that it is bound by the Treaty of Utrecht (1713) to offer sovereignty to Spain in the event of Britain wishing to alienate it. The people of Gibraltar do not seek independence from Britain. However, we reject that the Treaty of Utrecht has this effect, for the following reasons:

(1)  It is trite international law that when a bilateral treaty is incompatible or inconsistent with the Charter of the United Nations, the latter prevails. To the extent that it "curtails" (as alleged by the UK) and denies (as alleged by Spain) the Gibraltarian's right to self determination, the Treaty of Utrecht is incompatible with the Charter of the UN.

(2)  It is the recently pronounced doctrine of the UN that in the process of decolonisation there is only one applicable principle and that is the principle of self determination.

(3)  All the other provisions of the Treaty of Utrecht have fallen into disuse. Indeed, Spain herself has historically renounced the Treaty by subjecting Gibraltar to frequent military sieges and attacks in an attempt to recapture Gibraltar by military force.

(4)  Although Spain now asserts that she recognises Britain's title under the Treaty of Utrecht to part of Gibraltar, she nevertheless maintains her claim to the return of Sovereignty, which by that same treaty she ceded to Britain "in perpetuity".

(5)  When Utrecht was signed, the principles of democracy, human rights, self-determination, etc., did not exist. It is democratically incongruous to rely on such a treaty to deny the right of self determination to a colonial people in the 20th (now nearly 21st) century.

(6)  The Government of Gibraltar would be content to see adjudicated in an international court of law the issue whether the Treaty of Utrecht is valid to curtail the Gibraltarians' right to decolonisation by the application of the principle of self determination.

  76. There is no relationship between the Treaty of Utrecht and international instruments relating to the EU. Article 227(4) of the Treaty of Rome provides that:

"The provisions of the Treaty shall apply to the European Territories for whose external relations a Member State is responsible".

  The UK is responsible for our external affairs by virtue of the fact that we are her overseas territory (previously colony and later dependent territory) and not by virtue of the Treaty of Utrecht. The UK is equally responsible for the external affairs of its other 12 overseas territories who are not the subject of such a Treaty.

  77. Given that Gibraltar does not seek independence from Britain the issue is on our interpretation of the Treaty of Utrecht (in the practice, though not in the theory) academic. Gibraltar does not wish Britain to alienate Sovereignty of Gibraltar given that we wish to maintain British Sovereignty. However, Spain interprets "sovereignty" in the context of Utrecht much more widely to include constitutional self government. Accordingly, Spain regards any transfer of powers from UK (as colonial power) to Gibraltar as "alienation of Sovereignty". The Gibraltar Government rejects this view, which it would be content to see tested in an international court of law.

  78. The second method of decolonisation acceptable to the UN (see paragraph 74 above) is free association with an independent state provided that the colonial territory is free to disassociate at any later date. The British Government therefore purports to reject this option as well on the grounds that, by virtue of the subsequent disassociation mechanism, it could result in independence.

  79. The third option is integration with an independent state. Britain first rejected this option for Gibraltar in 1976 and has maintained that refusal ever since. The recent White Paper on overseas territories says that HMG has concluded that neither integration into the UK nor Crown Dependency status "offer more appropriate alternatives to the present arrangements". This denial of the integration option may be legitimate in respect of territories to whom independence is available. It is less obviously so in the case of Gibraltar to whom Britain herself denies this option. The Gibraltar Government regrets that the White Paper appears to close the door on this option.

  80. HMG's stated position is that Gibraltar does have the right to self determination but that it is "curtailed" by the Treaty of Utrecht. This must mean something. It cannot mean that we have no right to self determination at all.

  81. Since Britain herself denies us the first three of the four UN options (independence, free association and integration), this only leaves the fourth UN option. If Britain denies us the fourth option as well, she is in effect denying altogether the right of self determination/decolonisation of the people of Gibraltar. It would then be incorrect to say (as Britain does) that we do have the right to self determination but that this is "curtailed" by Utrecht. The position would then be that Gibraltar was obliged to remain a colony indefinitely until we were willing to negotiate surrender of our sovereignty to Spain. If that is HMG's position it should say so clearly and unambiguously.

  82. Although HMG's position is that constitutional reform for Gibraltar is formally a matter for the UK and Gibraltar, HMG has (of late) taken and articulated the view that there is "a Spanish Dimension". It has not been plainly spelt out what this means. The concern in Gibraltar is that the so-called "Spanish dimension" is euphemism for the constant threat from Spain of the adverse consequences which would follow were the UK to agree to constitutional change for Gibraltar, particularly if that were to result in a greater measure of self-government, and that accordingly Britain will, in practice, not agree to meaningful constitutional advancement to which Spain would object.

  83. The Gibraltar Government's policy is, by means of the UN's "fourth option" for decolonisation, to seek the effective decolonisation of Gibraltar, by means of the modernisation of Gibraltar's bilateral constitutional relationship with the UK.

  84. Such constitutional modernisation would leave Gibraltar under British Sovereignty and as part of HM's dominions, with a close political and constitutional relationship with the UK, which relationship would not be colonial in nature. This new constitutional relationship, when accepted by the people of Gibraltar in referendum (as all constitutional change must be) would complete the decolonisation of Gibraltar by the exercise of the right to self determination, and without breaching the Treaty of Utrecht, since British Sovereignty would continue. "British Sovereignty" for the purpose of Utrecht is not synonymous with colonial status.

  85. Although the Gibraltar Government has submitted to HMG detailed and specific ideas for constitutional modernisation, no proposals have yet been formally tabled. The next stage as far as the Gibraltar Government is concerned is to establish a Select Committee of the House of Assembly to consider constitutional modernisation and arrive at consensus proposals to put formally to London.

  86. In January 1998 the Gibraltar Government and HMG initiated exploratory discussions to assess the extent of common ground that might exist in relation to the Gibraltar Government's detailed ideas. These preliminary discussions have continued throughout 1998. The so-called "Spanish dimension" has figured significantly during those discussions. The Gibraltar Government seriously doubts HMG's willingness to allow significant and meaningful change to the Gibraltar Constitution such that would enable Gibraltar to take the view that we had "decolonised", or at all. HMG has so far expressed a willingness in principle to look at "minor amendments" to the 1969 Constitution.

  87. The Gibraltar Government will nevertheless proceed with its policy in this regard. All other decolonisation options have been ruled out by the UK. If it is, in fact, HMG's position that the decolonisation of Gibraltar by this last remaining option (constitutional modernisation) is not available to Gibraltar either, unless Spain consents, I believe that HMG has a moral and political obligation to say so clearly and unambiguously directly to the people of Gibraltar so that they know where they stand. The logical consequence of this being so would be that, as far as HMG is concerned, the people of Gibraltar's right to self determination is limited to not being handed over to Spain against their wishes and in the meantime to remain a colony. If that is so that should be clearly stated as well. The choice between remaining a colony and not being handed over to Spain does not constitute self determination.

  88. In its proposals for constitutional development, the Gibraltar Government seeks to consolidate the many changes that have taken place de facto since the last Constitution was enacted in 1969. That Constitution pre dated membership of the European Union and the Government's proposals take account of the changing nature of the relationship between the UK and Gibraltar flowing from the rights and obligations which arise from EU Membership whilst preserving Gibraltar's autonomy. The Gibraltar Government recognises that the UK has a legitimate interest in the conduct of Gibraltar's affairs and that there should be last resort provisions to enable the UK Government to protect those interests. At the same time, the existing residual colonial features of the present Constitution would be removed, effectively terminating Gibraltar's colonial status.

  89. The importance to Gibraltar of meaningful constitutional modernisation is not limited to our natural desire to evolve away from a colonial status while preserving British Sovereignty and our close links with the UK. Spain deploys internationally to her advantage the fact that we are still a colony.

  90. In presenting his proposals in December 1997 (the Matutes Proposals) Senor Matutes specifically pointed out that his "autonomy within Spain" proposals were generous because under the Spanish Constitution autonomous powers were cast in law and his offer therefore amounted to a legally more ample autonomy than our current colonial constitution. He said that our 1969 Constitution establishes a "typically colonial regime, in which, over and above the local Government, there exists a Governor representing the British Crown who preserves ample discretionary powers to impose legislation or to veto actions approved by the Gibraltar legislative assembly".

  91. Sr Matutes went on to add that "By contrast in the Spanish system there exists an authentic sharing of power between the State and the autonomies: the competences of each are expressly established by the law and any conflict between them is dealt with under law, being decided by the Constitutional Court".

  92. Sr Matutes therefore described his offer of a Spanish autonomy status for Gibraltar as representing generous and "undoubtable advantages" as compared to our current colonial constitution.

  93. We do not believe that Sr Matutes' offer is generous. It is important for Gibraltar that our Constitutional relationship with the UK should not be such that Sr Matutes can hold up to the outside world his own offer as generous by comparison.

F. EUROPEAN UNION ISSUES

  94. Gibraltar is not part of metropolitan UK for EU purposes. Article 227(4) of the Treaty of Rome stipulates as follows:

"The provisions of this Treaty shall apply to the European territories for whose external relations a Member State is responsible."

  Accordingly the Treaty of Rome (and consequently all primary EU law) applies to Gibraltar by virtue of its constitutional relationship with the UK. Clearly, this does not make Gibraltar a separate "member state" of the EU. The UK is the member state responsible for Gibraltar's compliance with its EU obligations. But the Gibraltar Constitution remains valid and effective in the context of Gibraltar's status within the EU.

  Accordingly Gibraltar remains a separate (from the UK) jurisdiction with its own legislature, government, public administration and judiciary on the terms set out in the Constitution and accepted practice. Gibraltar has its own European Communities Ordinance and is, in the first instance, responsible for giving effect in Gibraltar to EU legislation, including transposition of EU directives into Gibraltar law.

  95. When Spain joined the EC it was wrongly assumed that this would require her to modify her attitude to Gibraltar to make it communautaire. In practice the opposite has occurred. Spain is now using the EU as a platform and forum to pursue her sovereignty claim over Gibraltar, to attempt to negate our Constitutional autonomy (to which she has always objected) and to marginalise Gibraltar as far as possible from the EU.

  96. This she does by constantly raising Gibraltar as an issue in EU business. These issues fall broadly into three categories:

(1)  The exclusion of Gibraltar altogether from EU measures.

(2)  Non-recognition issues.

(3)  The so-called "competent authority" issue.

  Each of these is dealt with separately in the next following paragraphs.

97. Exclusion of Gibraltar

(a) Aviation measures

  97.1 Spain first intervened in the EU over Gibraltar in 1987 when she threatened the use of her veto to block the first measures under the EC Air Liberalisation Regime. In order to overcome Spain's veto the UK Government negotiated a bilateral Airport Agreement with Spain in 1987 for the joint use of Gibraltar Airport. That Agreement was not implemented principally because of Gibraltar's concern that Clause 1 of the Agreement infringed British sovereignty over the airport effectively giving Spain joint control. Gibraltar has never objected to the use of Gibraltar airport by any international airline and would greatly welcome normal commercial development. Gibraltar's concern over the Agreement was increased because of the differing interpretations of that Agreement by the UK and Spain. The UK stated that Spain would only have joint use and would be consulted on working arrangements at the airport. Spain argued that under the Agreement she would have joint control and would exercise the right to decide on flight authorisations. The UK succumbed to the Spanish veto and the 1987 Air Liberalisation Directive was agreed with the suspension of its application to Gibraltar airport unless and until Gibraltar accepted the Airport Agreement. The UK considered that its wider national interest in this field could not be sacrificed because of Gibraltar.

  97.2 In the event, the EU Third Air Liberalisation package which was introduced in 1993 effectively rendered the bilateral Airport Agreement redundant because the 1993 measures removed governmental competence in route authorisation matters. Notwithstanding this, Spain insists that there can be no progress nor review of the position until the 1987 Agreement is first implemented as originally agreed.

  97.3 The suspension of Gibraltar airport from air liberalisation measures is discriminatory, removes an acquired right enjoyed by Gibraltar under the 1983 Directives and imposes an unreasonable precondition on Gibraltar's rights to benefit from Community measures aimed at improving intra Community communications.

  97.4 Initially this position was limited to so-called "access" measures, i.e., the operation of air services to Gibraltar airport. However, since 1995 Spain has sought Gibraltar's systematic exclusion from all directives and regulations howsoever related to the airport or aviation (i.e., not just "access" measures).

  97.5 Certain other aviation measures are currently the subject of impasse because Spain demands Gibraltar's exclusion. These include:

—  The Aviation Statistics Regulation which has been blocked in the Council since 1996.

—  Proposal to amend the Denied Boarding Compensation Regulation.

  HMG has stated that she will not agree to Gibraltar's exclusion from these measures.

  97.6 The Gibraltar Government's position on these issues, put forcefully and repeatedly to HMG, in writing and orally at numerous meetings, is that HMG should not agree to the exclusion of Gibraltar from any aviation measure (save access measures, for historical consistence—but not because that is justified either).

  97.7 HMG's position, as put in writing to the Gibraltar Government, is that HMG "will continue to take forward EU business on a case by case basis, we (SIC) will not accede to a policy, such as the one that Spain is now proposing, that seeks systematically to suspend Gibraltar from all future EC aviation measures"; and

"We support Gibraltar's rights to participate in all EC aviation measures. However, there will be cases when the interests of Gibraltar are outweighed by the interests of the UK or the EU as a whole. We have to determine the best course of action depending on the nature and circumstances of each case as it arises."

  97.8 The Government of Gibraltar is not content with this approach. This should not be treated as a matter of balancing the respective "interests" of (1) EU/UK and (2) Gibraltar, but as a matter of Gibraltar's right to be included in all community measures.

  Gibraltar has been excluded from all the following "non access" aviation measures at Spain's insistence.

—  EC Regulation 95/93 on common rules for the allocation of slots at community airports.

—  EC Directive 96/67 on access to the groundhandling market at Community airports.

—  EC Directive on airport charges.

—  EC Directive on "hush-kits" [a noise directive].

  Needless to say, even though Gibraltar is sometimes excluded under pressure from Spain, we are not given the option to be excluded from onerous directives when we consider that a balance of our interests so indicates.

  97.9 One aviation measure from which Spain sought Gibraltar's exclusion is the Ramp Checks Directive (requiring safety checks on non-EU airplanes using community airports). On this occasion (in December 1998) Dr John Reid, Minister of Transport at the DETR, stood firm and refused to accept Spain's demand for Gibraltar's exclusion. As a result agreement on the directive was not possible and the proposal has expired for the entire EU. The Government of Gibraltar believes that this is the correct approach based on Gibraltar's EU rights.

(b) External Frontiers Convention

  97.10 The other issue on which Spain seeks Gibraltar's outright exclusion is external frontiers. Indeed, the External Frontiers Convention has been blocked since 1990 due to this very fact. Spain contends that the EU's external Southern border should be the Gibraltar/Spain border, therefore leaving the territory of Gibraltar outside the EU's external frontiers. This would be a serious blow to Gibraltar since it would amount to real physical marginalisation of Gibraltar from the EU. Although the UK presently says that she remains uninterested in participating in external borders issues, this, given the effective veto obtained by Spain at Amsterdam, remains a serious threat when and if the UK decides to participate.

98. Non Recognition issues

  98.1 ID Cards. Spain refuses to recognise Gibraltar ID cards as valid travel documents. Gibraltar has operated an identity card system since 1943. When the EU introduced its common format requirement for ID cards, Gibraltar modified its own cards to bring them into line with EU requirements. On 15 May 1995, the United Kingdom Government informed the Commission and the other Member States that Gibraltar's identity card was to be considered as valid under the terms of the EU Directives relating to the right to travel and to reside of workers, self-employed persons, tourists, retired persons, economically inactive persons and students. The Commission accepted the validity of the Gibraltar identity card and so informed all Member States. Spain refused to accept the use of the Gibraltar card and requested other Member States to follow. Spain argues that Gibraltar does not have the competence to issue such documents. HMG has, from the outset rejected this view. The matter was taken up by the UK Government with the EC Commission on 9 October 1995. Since then, the matter has been referred to the EU Infraction Chefs Committee but no decision appears to have been taken to address the complaint. It should be noted that Spanish identity cards are recognised by the Gibraltar authorities as valid travel documents to enter and leave Gibraltar.

  98.2 Passports. Spain has, in the past threatened to withhold recognition of British passports issued in Gibraltar by HE the Governor on behalf of Her Majesty the Queen (as has always been done by Governors in all Dependent Territories). The threat was carried out in a number of cases.

  98.3 Driving Licences. More recently Spain has threatened to withhold (and in a limited number of cases has in fact denied), recognition of driving licences issued in Gibraltar.

  98.4 Telephone numbering plan and mobile roaming. Since the introduction of international direct dialling in the late 1970's, Gibraltar has had its own international area code (350) that is in use for all international telephone traffic to Gibraltar except from Spain. This reflects Spain's refusal to recognise Gibraltar's IDD code. When direct dialling telephone links were restored with Spain, an arrangement was entered into whereby telephone traffic from Spain accessed Gibraltar via the internal Spanish area code for the adjoining Spanish province of Cadiz (956) extended by a further digit (7). This in effect made Gibraltar's telephone numbering plan part of Spain's. This arrangement provides a total maximum capacity of 30,000 numbers. Gibraltar has almost exhausted these numbers and is unable to increase it because the Spanish operator will neither recognise Gibraltar's international area code (which would couple our numbering plan from Spain's) nor allocate to Gibraltar the additional numbers that we require. The (350) code is recognised by every country in the world except Spain. This position will physically prevent Gibraltar from complying with EC telephone liberalisation directives.

  98.5 The Spanish operator, Telefonica has also refused to grant roaming facilities for Gibraltar's mobile phone network. Telefonica have admitted that they are acting on instructions from the Spanish Government. These discriminatory measures have been the subject of a complaint to the European Commission by Gibraltar's own telecommunication operators. The Commission has taken up the matter with the Spanish Government who have replied that they will not recognise Gibraltar's code nor permit her operators to connect directly to the Gibraltar mobile phone operator to permit roaming in Spain for Gibraltar subscribers.

  98.6 Shipping Registry. Gibraltar's shipping register was designated as a Category 1 Register by Order in Council i.e., The Merchant Shipping (Categorisation of Registries of Overseas Territories) (Gibraltar) Order 1996. Gibraltar has invested heavily in upgrading the Register in legislating to international standards, and in investing on staff and facilities to market the Register's advantages internationally. The development of the Register is crucial to the overall development of Gibraltar's Port and facilities.

  A leading international company was about to flag its ship into the Gibraltar register when its Spanish port agent was told by the Spanish Maritime Authorities "that as far as they are concerned the Gibraltar Registry does not exist for Spain and that they would not grant any permission for moving cargoes between two Spanish ports on a Gibraltar registered vessel". As a result of this the ship-owner in question was dissuaded from registering in Gibraltar.

  Under Article 4 of the Annex attached to the European Commission's State aid guidelines for the maritime transport sector (Document 97/C205/05), which annex defines "Member State Shipping registers" it states that "in the case of Gibraltar, the Treaty applies fully and, although the territory is not considered part of the UK, the Gibraltar register is, for the purposes of these guidelines, considered to be a Member States' register". Attached at Annex 10.

  Representations were made to HMG in February 1998 explaining that the Spanish action was seriously detrimental to the commercial prospects for Gibraltar's British Category 1 Register. It also represented a gratuitous breach of Spain's EU obligations towards Gibraltar and of its rights. Finally it represented a bare faced challenge by Spain to British jurisdiction in, and therefore sovereignty of, Gibraltar. HMG was asked to obtain formal assurances from Spain that Spain would not withhold recognition of our Register, nor interfere with ships registered on it.

  By November 1998, there were further reports of difficulties being experienced by ship-owners in Greece and Italy where the Port Authorities raised doubts about the status of Gibraltar's ship registry. The Gibraltar Government asked HMG to take steps to ensure that all EU Member States were formally reminded about the status of the Gibraltar Registry and that confirmation was sought and obtained on recognition. As the UK DETR has confirmed, the Gibraltar Registry is properly constituted under UK law and operates in accordance with international conventions.

99. The competent authority issue

  99.1 Since Gibraltar entered the EC (with UK in 1973) the inter relationship of our EC Status on the one hand, and our own Constitution on the other hand has resulted in a situation whereby the practical implementation and administration of an EU measure in Gibraltar has been done by Gibraltar's own domestic constitutional, competent authority or contact point (as the case may be).

  99.2 Spain is now seeking to prevent this by insisting that Gibraltar should become the political and administrative responsibility of the appropriate UK domestic competent authority.

  

  99.3 This is not acceptable to the Government of Gibraltar since it would result in the abrogation of our constitutional autonomy and in the very substantial erosion of our administrative and jurisdictional competence. This would, in practice, amount to administrative integration into the UK, without political integration, and would thus be constitutionally retrograde for Gibraltar. This is Spain's objective since she has never recognised, and has always sought to reverse our Constitutional autonomy.

  99.4 It is essential that the UK should retain and exercise its right to continue to designate the appropriate competent authority in Gibraltar for the implementation of EU measures.

  99.5 This of course does not raise any issue of international or diplomatic representation of Gibraltar which is, of course, done by the UK.

  99.6 In this connection please see the following paragraph in HMG's internal document at Annex 8 (referred to in this Memorandum at paragraph 100.7):

"—competent authorities: where competent authorities are not named in the text itself, it is necessary to ensure that more than one authority is acceptable—i.e., that any reference is in the plural where the context demands this. If competent authorities are actually listed, the relevant Gibraltar authority (where applicable) should be named alongside the main UK authority."

  99.7 Financial Services/Financial Services Commission. Having transposed all EU legislation on insurance and satisfied the UK supervisory authorities that Gibraltar's standards of supervision matched those of the UK, it was agreed in June 1997 that Gibraltar was authorised to issue insurance licences for business throughout the EU, commonly known as insurance passporting. The UK Government confirmed that insurance companies with head offices in Gibraltar and with authorisation from Gibraltar would be able to operate both in the UK and in all other Member States. The UK Government further confirmed that if any Member State were to challenge this right Gibraltar would be able to count on the UK Government's support. UK Rep Brussels wrote to the European Commission to notify the decision taken and to put the Commission on notice that the UK expected the Commission to support fully the right of Gibraltar insurers to do business in other EEA States. A number of Member States refused to accept that the UK notification was valid. This is largely the result of Spain's lobbying. This has severely affected Gibraltar's ability to develop the insurance market. The UK Government lobbied Member States to reinforce the validity of Gibraltar issued licences. In an attempt to resolve this blockage, Gibraltar agreed that a post-box mechanism (whereby communications were sent to Gibraltar via the UK) could be used to overcome concerns in other Member States. This alternative solution has to date not been cleared in Whitehall because of inter departmental differences as to which department would assume responsibility for the post-box.

  Gibraltar also has completed transposition of all EU banking legislation but is still awaiting confirmation from the UK that it will be authorised to issue banking licences for passporting into the EU.

  99.8 European Company Statute Regulation. There is currently a proposal for a Regulation to establish the European Company Statute. This provides for the registration of a common European company and for communications between the different competent European registries to communicate and exchange information. Spain has objected to the nomination of Gibraltar's companies registry as a competent authority for such purposes. Negotiations are on going and consideration is being given to a post-box formula on a similar basis to that which has been proposed for insurance passporting.

  99.9 Winding up Directive. Spain has objected to Gibraltar's inclusion in the scope of a proposed 1985 EU Directive concerning the re-organisation and winding up of credit institutions. This directive is based on the principle of mutual recognition of administrative and judicial decisions adopted, on the basis of domestic legislation, by the courts of every Member State. The UK has, for the purposes of the directive designated the insolvency laws and courts of England and Wales, Scotland, Northern Ireland and Gibraltar. Spain does not consider that it has to recognise, by means of a directive, the decisions of a Gibraltar Court applying measures which are specific to Gibraltar.

  Spain has sought the exclusion of Gibraltar's courts from this directive on the basis that she does not wish to recognise the insolvency and company re-organisation decisions of the Supreme Court of Gibraltar.

  99.10 Justice and Home Affairs (Third Pillar). Co-operation between EU Member States in matters of justice and home affairs have been dealt with under the Third Pillar of the EU Treaty as intergovernmental agreements. This therefore requires unanimity among Member States. Several Third Pillar instruments were negotiated throughout 1997 and 1998 including the European Judicial Network, the EURODAC Convention and the Driving Disqualification Convention. Spain adopted the position that it would not agree to any of these measures if Gibraltar's authorities were designated as competent authorities, insisting that Gibraltar could only participate through the UK's metropolitan domestic authorities. The Gibraltar Government requested the UK Government to insist on the UK's right as the Member State to designate the relevant authority in Gibraltar. The UK position in December 1997 in relation to EU Justice and Home Affairs measures then under discussion was that the UK:

—  cannot accept anything which stops the UK from designating Gibraltar as a contact point if it chooses to do so, or which would allow Spain plausibly so to argue after the event;

—  cannot accept anything which forces the UK explicitly to recognise and thereafter to some degree to acquiesce in Spain's refusal to deal with Gibraltar;

—  can accept something which implicitly accepts that one Member State does not have to deal through a given contact point in another Member State.

  This was subsequently modified in February 1998 as follows:

—  the territorial scope of a Third Pillar instrument should include Gibraltar unless there are good reasons for not doing so;

—  the UK should retain and exercise its right to designate the appropriate competent authority in Gibraltar if it wishes to do so.

—  the UK can accept implicitly that one Member State does not have to deal through a given contact point in another Member State.

  By May 1998, this position had been abandoned by HMG on the grounds that the three measures could not remain blocked indefinitely and that there was pressure from other Member States to facilitate the lifting of Spain's veto. The language agreed by HMG over the EURODAC and Driving Disqualification Conventions required the UK to nominate competent authorities/contact points only in the UK and positively disallowed the UK's right to nominate a competent authority in Gibraltar. It was in the light of this extraordinary concession that Gibraltar was obliged to opt to be excluded from the measures rather than be forced to participate through the UK's domestic authorities and thereby surrender its jurisdictional status and administrative autonomy and allow Spain to make deep inroads into our Constitution.

99.11 The UK's position in relation to these EU Issues

  HMG has recognised the existence of all the above mentioned threats to Gibraltar's position. Attached to this Memorandum, as Appendix 8, is a "checklist of Gibraltar pitfalls in EU business" circulated by the Cabinet Office to all UK departments in March 1997. This confirms all the issues dealt with in this part of this Memorandum.

  In particular, it identifies Spain's challenge to Gibraltar's separate juridical personality and our right to provide Gibraltar's competent authority in relation to the application in Gibraltar of EU measures.

  I would particularly refer the Committees attention to this document. Although this document is not classified, I believe that it would be appropriate for the Committee to treat it confidentially.

G. GIBRALTAR'S FINANCE CENTRE IN AN EU CONTEXT

  100. Amongst the many threats to Gibraltar contained in the document setting out the Matutes proposals is the threat to ensure that EU directives relating to financial services are strictly applied in Gibraltar.

  101. This does not in fact represent a threat. Three years ago the Gibraltar Government made it clear that its policy was to reposition Gibraltar as a fully compliant finance centre within the EU. To this end, during the last few years, Gibraltar has transposed almost all applicable directives, including those relating to insurance, banking and investment services. Even though EU directives do not require it, we have also regulated the company and trust formation and management business. No other offshore finance centre has yet done so.

  102. Consequently Gibraltar fully intends to comply with all EU legal requirements in relation to financial services. As stated earlier in this Memorandum, the only significant financial services directives remaining to be transposed are the Fourth and Seventh Company Law Directives.

  103. Nevertheless Gibraltar's EU status does present challenges to its finance centre. These comprise mainly (1) the proposal for a directive on taxation on savings and (2) the Tax Code relating to so called "harmful taxation competition".

  104. The proposed directive on taxation on savings, as the draft currently stands, would require banks, in respect of depositors who are resident in an EU member state, either to deduct tax from interest paid (currently the rate of 20 per cent is mooted) OR alternatively to inform that tax authorities of the member state in which the depositor is resident of the fact that interest has been paid to him. This proposal will significantly prejudice Gibraltar's offshore banking sector which is currently an important part of our finance centre and a significant employer. Gibraltar Government requested HMG to exclude Gibraltar from this directive, given the potentially very serious effect of it on our economy. HMG declined to do so.

  105. Many of Gibraltar's finance centre products (and indeed non finance centre related inward investment incentive schemes) are incompatible with the Tax Code on Harmful Tax Competition. The effect of this Code (especially when, but regardless of being, added to the effects of the proposed directive on taxation of savings and the Fourth and Seventh Company Law Directives) would have several adverse consequences to the Gibraltar finance centre as currently constituted.

  106. The Tax Code is a voluntary political agreement and is not legally binding. The Gibraltar Government requested HMG to exclude Gibraltar from its scope given that it did not constitute an international legal obligation. Taxation is constitutionally a matter for the Government of Gibraltar which does not wish to be included in this "non-binding political agreement". HMG declined to exclude Gibraltar.

  107. Given that the Code does not constitute an international legal obligation, and given the position under the Constitution, and further than the Code is voluntary, the Gibraltar Government will not implement or comply with it. However, the Gibraltar Government has indicated to HMG that given that the Code, in any case, reflects a wider agenda towards which the international community is inexorably moving (vide the parallel OECD and G7 initiatives), the Gibraltar Government will, in manner and in a timescale compatible with the economic interests of Gibraltar, move towards repositioning our finance centre so in the medium to long term it will, in fact, not offend the Tax Code (and other similar international, non-EU initiatives).

H. SCHENGEN ISSUES

  108. In my statement to the Committee on 5 November 1997 I pointed out the dangers to Gibraltar should Britain decide to opt into any of the existing Schengen acquis measures, following the fact that, on the night of the Amsterdam Treaty, Spain effectively obtained a veto by requiring the unanimous consent of the other member states to UK opt-in.

  109. At paragraph 18(3) of my statement I asked the Committee to remain vigilant and to press HMG for commitments that:

"If, in the event that at some future date HMG decides that UK wishes to take part in the Schengen arrangements and if, upon so applying to do, Spain seeks to apply a veto to UK participation, unless UK agrees to exclude Gibraltar from participation, that HMG does not agree to such a course of action."

  110. HMG is currently considering which parts of the exiting Schengen acquis it wishes to participate in. HMG has indicated that it is not currently interested in participating in those parts of the existing Schengen Acquis which relate to free borders.

  111. The Gibraltar Government has informed HMG that Gibraltar wishes to participate in all parts of the Schengen acquis in which the UK participates. We have informed HMG that exclusion of Gibraltar from any part of the Schengen acquis which UK participates in will isolate Gibraltar in the EU. I attach to this Memorandum, as Appendix 9 copies of letters dated 27 November 1998 and 23 February 1999 addressed by the Gibraltar Government to the FCO.

  112. In this respect I am reassured by the statement made in the House of Commons on 16 March 1999 by the Foreign Secretary, Robin Cook in answer to questions from Mr Michael Howard. Asked by the latter whether he would assure "the House that the Government's application to sign up to Schengen will include Gibraltar and that they will not make any concessions on Gibraltar in order to overcome Spain's veto", the Foreign Secretary answered as follows:

"There is no intention of making any concessions on Gibraltar in relation either to this issue or to any other."

I. ISSUES RELATING TO NEW TITLE IIIA TEC RELATING TO FREE MOVEMENT

  113. At paragraph 18(4) of my statement dated 5 November 1997 to the Committee I asked that the Committee to remain vigilant and to press HMG for commitments, inter alia on the following matters:

"Although we are assured that she would not be entitled to do so, that should Spain attempt to exclude Gibraltar from other measures to be drawn up under the new Title IIIA of the Treaty in the field of visas, asylum, immigration and other policies related to free movement of persons, which include external border controls and police and judicial co-operation, HMG will ensure that Spain's attempt would not succeed."

  114. During your recent visit to Gibraltar the Committee asked me to comment on the assurances that I have received in this regard.

  115. As members of the Committee will know, Title IIIA to the Treaty Establishing the Community is part of the First Pillar. We have frequently been told that Gibraltar has an entitlement to participate in First Pillar measures, with the UK, pursuant to Article 227(4) of the Treaty (quoted earlier in this Memorandum at paragraph 76). Spain has no right to insist on Gibraltar's exclusion, given that First Pillar measures are community acts. This is in contrast to Third Pillar measures which are inter governmental agreements. It appears that Spain is not bound to agree to intergovernmental measures on terms with which she does not agree.

  116. The reason why I requested the Committee's vigilance not withstanding our treaty right to participate in the First Pillar measures under the new Title IIIA is that there is a precedent for HMG's gratuitous exclusion of Gibraltar from the application of a First Pillar measure, namely the Air Liberalisation Directives. Notwithstanding therefore that Spain has no legal entitlement to exclude Gibraltar, HMG may nevertheless agree to do so (as occurred with the Air Liberalisation Directives) to unblock internal EC negotiations on the measure. It is vital to Gibraltar's EC rights and interests that this does not occur.

  117. The agreed record of a meeting that took place on 7 June 1997 between me and the Head of the European Union Department of the FCO contains the clear statement that:

"all measures under the First Pillar applied to Gibraltar. Those under the Third Pillar would only apply if the UK agreed to under intergovernmental arrangements."

  118. This position is corroborated by several statements made by Ministers subsequent to the signing of the Treaty of Amsterdam in June 1997.

  119. In a letter to me dated 27 August 1997 Doug Henderson (then Minister of State at the Foreign and Commonwealth Office) said:

"You raised the possibility of the UK participating in future measures on frontiers adopted under Title IIIA of the draft Treaty of Amsterdam. If those measures are proposals to build on the Schengen acquis, UK participation is governed by Article D of the Schengen Protocol. If they are unrelated to the Schengen acquis the procedure in Article 3 of Protocol Y applies. If the UK does not participate initially but wishes to do so later this is not subject to unanimous decision, but to the procedure in Article 5a.3 of the flexibility provisions. This procedure requires the Commission to decide on the UK's request to participate."

  120. In the debate in the House of Commons on the European Communities (Amendment) Bill Doug Henderson said, on 15 January 1998 (at col. 566), as follows:

"The answer is that, where a measure is introduced under the European Community Treaty—in other words, a first pillar measure—Gibraltar is included by virtue of Article 227, paragraph 4 of the Treaty . . . "

J. EUROVOTE ISSUE

  121. The European Court of Human Rights has ruled that the UK is in violation of Article 3 of the European Convention of Human Rights as a result of having failed to make provision to enfranchise the people of Gibraltar to elections for the European Parliament.

  122. In Annex II of the EC Act of Direct Elections of 1976 (an EC agreement between the member states) the UK had said that in respect of the UK the act would apply only to the UK (i.e., not Gibraltar). Consequently the subsequent UK Act of parliament establishing elections for MEPs in the UK did not make provision for Gibraltar.

  123. HMG believes that it cannot comply with the ruling without obtaining an amendment to the 1976 Act/Treaty. I believe that HMG has given notice in the Council seeking such an amendment.

  124. Gibraltar naturally expects that the violation will be rectified as soon as possible. This will require the enfranchisement of the people of Gibraltar in the territory of Gibraltar by including the territory and consequently (the qualifying) Gibraltar electorate in one of the new UK Regional Constituencies.

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Prepared 17 May 1999