Why Brexit Poses an Existential Issue for Gibraltar

(Bloomberg) -- Just as the U.K.’s exit from the European Union poses challenges for the Irish border, it may complicate life on and around Gibraltar. The rocky outcrop at Spain’s southern tip has been British territory for 300 years, and its 2.2 billion pound ($2.9 billion) services economy relies on frontier workers coming from Spain for about 50 percent of its labor force. Their salaries, plus the business of supplying Gibraltar, are a lifeline for Spanish towns close to the border, whose unemployment rate about doubles the nation’s average. Before the EU and the U.K. agree on the terms of their divorce, British and Spanish leaders will need to decide what to do about Gibraltar.

1. How does Brexit apply to Gibraltar?

The 6.8 square-kilometer enclave is a self-governing British overseas territory, like Bermuda or the Falklands Islands. As such, most of its 34,000 residents are British citizens, who voted almost unanimously in a 2002 referendum to remain under sole British sovereignty. At the same time, Gibraltar is physically part of Europe’s mainland, with deep ties to neighboring Spain -- which, over the years, has questioned the legal basis of the U.K.’s claims to the territory. In the 2016 Brexit referendum narrowly won by anti-EU forces, 96 percent of Gibraltarians voted in favor of remaining in the EU.

2. What changes could Brexit bring?

When the U.K. and EU enact their separation, as early as March 2019, Gibraltar’s border with Spain -- like that between the Republic of Ireland and Northern Ireland -- will become a divide between EU and non-EU. That could well complicate what’s now a relatively free flow of goods and people across the border. Unlike Ireland, Gibraltar isn’t part of the existing EU customs union, so goods being imported and exported are already subject to a tariff. But a pragmatic approach has governed the passage of people, which has generally meant rapid or no passport checks when moving between Spain and Gibraltar. If that changes, there could be major repercussions. Back in 2014, during a series of incidents between boats of the Spanish Civil Guard and the Gibraltar police, the Spanish government imposed border controls that caused long lines for commuters and significant economic disruption.

3. What does this mean for life in Gibraltar?

Potentially a great deal. Gibraltar’s economy is based on services including banking, insurance and online gambling to the U.K. and other countries. More than half of Gibraltar’s 27,000 jobs are filled by workers who live in the surrounding area, known as Campo de Gibraltar. That labor force would be hard to replace, since Gibraltar’s unemployment rate is close to zero and there’s little space for new housing. On Spain’s side, the jobless rate at La Linea de la Concepcion, the closest town to the border, would jump above 70 percent should the lack of agreement make it impossible for them to work on the Rock, from around 30 percent, according to the local administration’s calculations. High unemployment is already one reason why the Spanish town is known as a gateway for illegal drugs entering the EU.

Why Brexit Poses an Existential Issue for Gibraltar

4. Could Spain end up with control of Gibraltar?

That’s highly unlikely. The U.K. has always said it would defend Gibraltarians against Spain’s claims to sovereignty, a pledge strengthened by the result of the 2002 non-binding referendum. Spain’s priorities in negotiations have been protecting the rights of its citizens who work on Gibraltar and having a role in the management of Gibraltar’s airport.

5. What scenarios are being discussed?

Few details have emerged from negotiations between the U.K. and Spain. The main topics appear to be environmental issues (such as the regulation of offshore refueling of vessels), taxes and -- most sensitive of all -- the airport, the flagship expression of Gibraltar’s sovereignty. The airport is located on the border and has been long been the subject of competing claims. Spain says the land wasn’t ceded under the Utrecht Treaty of 1713, which ended the War of the Spanish Succession between European powers led by England and France. In 2006, the U.K., Spain and Gibraltar reached an agreement -- never fully implemented -- on the common use of the airport, including an accord for the government of Rock to award the concession to a company with Gibraltarian and Spanish business interests. A fresh agreement would unblock investment projects in the area.

6. Why does the U.K. have to negotiate directly with Spain?

The guidelines for the Brexit negotiations, approved in March 2017 by the U.K. and EU, state that "no agreement between the EU and the United Kingdom may apply to the territory of Gibraltar without the agreement between the Kingdom of Spain and the United Kingdom." Any agreement on, say, financial and insurance services between the EU and U.K. will apply to Gibraltar-based businesses only if Spain approves. In practice, this means Gibraltar’s continued access to EU business and labor markets is up to Spain, though Spanish leaders don’t seem intent on using this power to block a wider U.K.-EU deal.

7. Why is Gibraltar important to the U.K.?

Its location on the narrow strait separating Europe and Africa makes it strategically significant, and the Royal Navy’s Gibraltar Squadron patrols the territorial waters. Using Gibraltar as a stronghold, British forces were able to control naval traffic passing between the Atlantic Ocean and Mediterranean Sea during World War II; U.S. General Dwight D. Eisenhower planned the allied invasion of North Africa from headquarters inside the Rock of Gibraltar’s tunnel system, which was made to protect British forces from Germany’s Luftwaffe.

8. Have I seen that rock before?

The Rock of Gibraltar is familiar to Americans as the logo of the Newark, New Jersey-based insurance company Prudential Financial Inc., whose advertising promises customers they can "Get a Piece of the Rock." (As it happens, insurance is one of Gibraltar’s leading industries.) Gibraltar was also the place chosen by John Lennon and Yoko Ono to celebrate their wedding away from the crowd of photographers and reporters in 1969, an adventure described in "The Ballad of John and Yoko."

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