Econostrum | Economic News in the Mediterranean

Gibraltar, the Mediterranean sand grain rock of Brexit

Written by Frédéric Dubessy on Monday, January 18th 2021 à 09:45 | Read 276 times

Despite the signing on Christmas Eve of a nearly 1,300-page pavement setting out the post-Brexit relationship between Britain and the EU, the question of Gibraltar has not yet been fully resolved. It will only be settled after bilateral negotiations between London and Madrid. In the meantime, the free movement of persons between this territory, which the UN considers to be non-self-governing, and Spain is not in question. Gibraltar should even be granted Schengen status in six months' time.

Gibraltar stands in the extreme South of Spain, opposite Morocco (photo: Gibraltar Tourist Office).
Gibraltar stands in the extreme South of Spain, opposite Morocco (photo: Gibraltar Tourist Office).
In the midst of the troubled sea of new relations between the European Union and the United Kingdom, a rock continues to emerge, Gibraltar. Only 14 kilometres from Morocco, and visible from the coast of Tangier, this 5.8 km² territory shares a border with Spain and the Andalusian city of La Linea de la Concepcion.

Two years ago, Madrid demanded the opening of bilateral discussions on the future status of Gibraltar with Great Britain. Spain even made its initialling of the "withdrawal treaty" conditional on the return of its sovereignty over the territory. "I regret to say that a pro-European government such as Spain's will vote, if there is no change, no to the Brexit," Pedro Sanchez, President of the Spanish Government, threatened on Tuesday 20 November 2018.
On 26 November 2018, Madrid finally agreed to vote "yes" to this agreement. Pedro Sanchez was quick to gloat: "I have just announced to the King of Spain that Spain has reached an agreement on Gibraltar (...) We are going to resolve a conflict that has lasted for more than 300 years". He even boasted: "We all lose with the Brexit, especially the United Kingdom, but as far as Gibraltar is concerned, Spain wins." A version disputed by his counterpart in the Perfidious Albion, Theresa May, for whom "Gibraltar is British."

A grain of sand in the immensity of the Brexit shipyard

In November 2002, in a referendum, 98.97% of the citizens of the Rock had already rejected any sovereignty shared between Great Britain and Spain. Going back further, at the beginning of the "question of Gibraltar" in September 1967, only forty-four out of 12,182 voters had voted in favour of annexation by Spain.

The rock is but a tiny grain of sand in the immensity of the Brexit construction site. So much so that the divorce act signed, the custody of Gibraltar has yet to be fixed. On 31 December 2020, an agreement in principle between Madrid and London will maintain the free movement of people between Spain and Gibraltar. It is only provisional. The fate of the Rock will only be truly confirmed once a framework agreement has been signed between the two capitals.

Gibraltarians, some 33,700 souls, voted 95.9% against Brexit in the June 2016 referendum, with a turnout of 83.6%. To these inhabitants should be added around 10,000 Spaniards who cross the 1.2 km² border every day to work or shop (alcohol, fuel, tobacco...). This is difficult at certain times, such as in 2017, when controls will be tightened. "Spain has always used queues as a political weapon against Gibraltar, since the first day the border was opened", complained Joseph Garcia, deputy head of local government at the time. During the Franco era, an iron fence separated the rock from the rest of the continent for nineteen years. The land border reopened in 1985, favouring tourism and trade.

An ambiguous status

Gibraltar has been on the official UN list of Non-Self-Governing Territories since 1946, those whose "populations are not yet fully self-governing", in the UN's words. As is the case with Western Sahara. It is the only one on the European continent to appear there.
Designated as a British Overseas Territory by the United Kingdom, it is administered by a Lieutenant General Governor, Edward Davis, with powers over defence, foreign affairs, internal security and economic matters. A Chief Minister, Fabian Picardo, manages all other tasks with his government. A seventeen-member parliament passes laws. Queen Elizabeth II is its Head of State.


A land border soon to be Schengen

In the summer of 2021 Gibraltar will become the only British territory that is a member of Schengen (of which it is not currently a member). Despite the Brexit, Spaniards, like other members of the European Union, crossing the border known as La Verja, will still not need to show their passports. But passengers coming from a British airport will have to show the famous sesame, since the UK is not part of this free trade area.

"We have reached an agreement in principle on Gibraltar. It will allow us to remove barriers and move towards an area of shared prosperity", Pedro Sanchez stressed. The status will be reviewed in four years' time with a new consultation between the British and Spanish, which will include a major issue: who will carry out customs controls at Gibraltar airport? Transitionally, the agents of Frontex, the European border and coastguard agency, have been carrying out this task since 1 January 2021. However, they are accountable to the Spanish authorities. This is a way of sparing the goat and the cabbage in the face of British opposition to letting the Spanish police carry out this mission.
In the meantime, restrictive measures apply. With a few exceptions, it is no longer possible to bring meat, fish (unless fresh and gutted), shellfish, milk or dairy products onto Spanish soil from Gibraltar. On the other hand, the local government of Gibraltar admits that "people will be able to continue to shop in Spanish supermarkets and bring these products into Gibraltar after leaving Spain via La Linea de la Concepcion, as is currently the case".

A European-dependent economy

Gibraltar has a GDP of £2.34bn (€2.6bn), 100% of which is generated in the services sector.
Its economy is based on four pillars: financial services (20% of GDP), tourism (particularly shopping), maritime services and the online gambling and betting sector (a quarter of total GDP). At 31 December 2018, the banks operating in Gibraltar held €9.1 billion in assets. Of the eleven authorised credit institutions, eight are branches or subsidiaries of international banks, two are local and one is owned by a British company. The Territory has fifty-eight insurance companies and thirty-nine brokerage intermediaries. Since November 2014, Gibraltar has its own stock exchange.

The Territory benefits from a specific tax regime defined in 1967 and a special single European status (the latter disappeared with the Brexit). The territory offers a tax of only 10% on the income of domiciled companies (17,175 at the end of December 2018), with a tax of 20% for companies in a dominant position, and no VAT. A person is considered resident in Gibraltar if he or she spends at least 183 days in Gibraltar in a tax year, or more than 300 days in three consecutive years.
But the rock has never been in the Schengen area, nor a member of the customs union, and has therefore never been able to benefit from all the common European policies (trade, agriculture, fisheries). Paradoxically, Brexit will change all this (see above).
Gibraltar does not receive any economic aid from Great Britain.
Long on the OECD (Organisation for Economic Co-operation and Development) grey list of tax havens, Gibraltar was removed from it in 2009. In July 2019, the territory joined the inclusive BEPS framework of the organisation and the G20. It committed to implementing all the measures adopted by the framework, which now includes 130 countries and jurisdictions and combats "the erosion of the tax base and the transfer of profits (BEPS) (...) strategies that exploit loopholes and differences in tax rules to remove profits for tax purposes or transfer them to countries or territories where the company has little real business", according to the OECD. On 1 September 2020, it published its assessment report on transparency and exchange of information for tax purposes on Gibraltar. It is a 126-page document.

For the Spanish authorities, Gibraltar remains a tax haven. The treaty initialled in March 2019 between the United Kingdom and Spain, based on the one signed between the EU and London in November 2018, states that "legal persons and other entities of Gibraltar" must establish their tax residence in Spain if they derive most of their income, own most of their assets there or if the majority of their owners or managers reside there. With this agreement, Madrid intends to facilitate the resolution of conflicts of tax residence and to limit the effects of the specific status of Gibraltar which is detrimental to the Spanish Treasury.

An eventful history

Gibraltar takes its name from the Arabic Jebel Tariq (Mount Tariq). The Berber Tariq ibn Ziyad was one of the main actors in the conquest of Spain in the 6th century by the Umayyads. It began from this rock in 711 and was called before Mount Calpe. In antiquity it was one of the two Columns of Hercules (together with the Jebel Musa in Morocco).

In turn Phoenician, Carthaginian, Roman, Visigoth, Muslim and Spanish, the fate of this strategic position in the Mediterranean to control the entrances and exits of this strait leading to the Atlantic Ocean, was to be determined after the last one a conflict on its lands.
On 13 July 1713, the Treaty of Utrecht, putting an end to the War of Spanish Succession, ratified the capture of Gibraltar by Anglo-Dutch forces in August 1704. Spain ceded this territory, which officially became a British colony (Crown Colony) in 1830. "In perpetuity", the document stated. This did not prevent the Spaniards from trying several times to re-conquer this bastion, both militarily and politically. Unsuccessfully so far.

Although English is the official language, many people in Gibraltar speak Spanish and Llanito, a dialect based on mainly English and Spanish words. But also medieval Genoese, Hebrew, Maltese and Portuguese.


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