Gibraltar: A Rock At Bay

Introduction

In January this year, Gibraltar's Chief Minister, Peter Caruana, was able to say in his New Year message: "2000 has generally been a good year for Gibraltar, although, as always, there have been many difficult issues to deal with."

He was able to highlight a range of domestic and international issues on which there had been notable progress in 2000, including modernisation of the built environment, successful growth of the Finance Centre and e-commerce gaming, continued low unemployment, the imminence of progress on the telephone numbers problem and the recognition of Gibraltarians' rights in the EU.

Mr Caruana was justifiably pleased at the level of UK assistance and pressure that had led to the resolution of a number of outstanding issues with the EU, and when in July the British Foreign Secretary, Jack Straw and the Spanish Minister of Foreign Affairs, Josep Pique i Camps, met in London to relaunch talks about Gibraltar's status under the 'Brussels Declaration', he may have felt that Gibraltar's long march towards stable independence was nearing its end.

How different the world now looks to Gibraltar, just three months later! The UK's apparently wilful failure to prevent Gibraltar's exclusion from the European Single Sky, and what is seen on the Rock as its craven acceptance of Spanish conditions for continued sovereignty negotiations led to the biggest ever anti-British demonstration in Gibraltar in October, with bi-partisan support. And the UK has also signally avoided giving any help to Gibraltar in its travails with the EU over its offshore regime - Gibraltar is desperately trying to preserve its competitive advantages while remaining within the EU, something that is beginning to look increasingly difficult, especially with a Spanish presidency of the EU on the horizon.

The events of September 11th, while not directly affecting life and limb in Gibraltar, are nonetheless very unhelpful to the colony, which is highly dependent on tourism and the travel sector generally.

So all in all, Gibraltar feels that it is fighting for its life with precious little help from its mother country and Mr Caruana would be less than human if he was not wondering almost out loud whether the time has not come for a step towards greater independence.

The Economy

Gibraltar's economy used to be substantially dominated by the British naval dockyard and military presence, but major cut-backs over the last 20 years have reduced the share of such expenditure to a small fraction of the local economy. Magnificent port facilities remain, so that shipping and tourism are the mainstays of the economy. More than 5m people visit Gibraltar annually, many of them evidently stepping ashore from cruise liners.

Gibraltar's GDP of about $500m gives GDP per head of about $17,500. Unemployment used to be a problem after the British left, but there are now fewer than 300 unemployed - not bad in a population of 28,000.

The Government pins its hopes for the future on the financial services sector, which has been growing rapidly. When agreement was finally reached between the British and Spanish Governments in April, 2000, to allow Gibraltar a full range of freedoms under the EU's single market, it was hoped that there would be a substantial boost to the banking, insurance and fund management sectors from firms wanting to base themselves in a low-tax area while being able use the passporting provisions of the single market directives, but this has not happened. Locals speculate that this is because most large companies had already placed their bets, so to speak, in competitor areas such as the Irish International Financial Services Centre in Dublin and in Luxembourg.

Nonetheless, the Finance Centre, the name given by the Government to the whole cluster of low-tax regimes including Exempt and Qualifying Companies is viewed with high importance: "No one in Gibraltar," said the Chief Minister, "whether they work directly in the Finance Centre or not should underestimate how important the Finance Centre is to the economic, and therefore to the social and political prosperity, and indeed survival, of Gibraltar."

"The Finance Centre provides vast numbers of jobs in Gibraltar. Probably as many as 5,000 jobs depend, directly or indirectly, on the Finance Centre. These people are, in turn, customers of other businesses. Finance Centre companies are themselves customers of many other businesses in Gibraltar. The tax and PAYE collected by Government from the Finance Centre pays for many public sector jobs, for many public services and for much public investment. The Finance Centre is an important mainstay of the private sector and therefore of the economy."

The Chief Minister said these things because he foresaw, accurately, that it would be necessary in 2001 to make significant changes to the Finance Centre's tax regimes in order to placate the OECD and the EU. In October 2001 anxious discussions were continuing to take place between the Government, business and the EU in the attempt to forge a new, non-discriminatory tax regime which would preserve at least the bulk of Gibraltar's international appeal.

However much the Government pins its future hopes on the Finance Centre, the day-to-day reality at present is that tourists and shipping provide the bulk of Gibraltar's income. Permanent inhabitants, at least those who don't own souvenir shops, detest the ever-present hordes of visitors, but would have to pay much higher taxes without them. The slowdown in world travel after September 11th has had a severe impact on Gibraltar's tourist trade - no doubt things will pick up again, but the numbers for 2001 probably won't make very nice reading.

The Government hasn't yet issued a 'profits warning' for the economy in 2001, but its budgetary expectations are surely being dented by the current situation. Originally, the turnover of the Government for 2001/2002 was expected to total £216 million, with total spending including capital expenditure of £25m leaving a surplus of £6m. Recurrent revenue however amounts to only about £190m, so that a relatively minor fall in tax collections would put spending programmes under strain.

It's difficult to predict the future for Gibraltar's economy. If the Government follows its current path towards accommodation with the EU and the OECD, it seems a brave assessment that the Finance Centre will continue to grow, given the competition from no-tax areas such as Dubai. As an e-commerce base for trading into the EU, the future may be rosier, but Gibraltar may be forced to rely more on its historical geographic advantage than it would really prefer. The cruise ships will continue to call, and intensive development of the already superb, but under-utilised port facilities together with associated light manufacturing will sustain employment.

The Government points out that well below 10% of the 70,000 ships that sail annually through the Strait of Gibraltar currently call at the Rock's port. For some time, the Government has been poised to take decisions about becoming a major container transhipment port. There are several arguments in favour of this idea. Although the Mediterranean in general probably has too many ports vying with each other to be major regional hubs, Gibraltar's geographical position would enable it to fulfil a role which is open only to a few: line-linking.

A substantial portion of the containers passing through Algeciras, on the other side of Gibraltar Bay, are transhipped from vessels on north-south routes, serving South America and Africa, to those on east-west voyages through the Mediterranean and vice versa. Tangier also has hopes to develop a transhipment centre, but experts suggest that building a terminal in Gibraltar would be far more economical, though still expected to cost in excess of £180 million.

If Gibraltar did become a line-linking centre it would also probably develop a network of regional feeder services. The increased traffic through the port would boost all the ancillary service providers and would create between 200 to 250 permanent jobs once up and running. It would also help reduce the port's current reliance on the bunker market. Numbers of ships calling for bunkers have risen from under 1,000 to over 3,000 in less than a decade.

Alongside the port itself, the Government of Gibraltar is promoting awareness of Gibraltar as an attractive manufacturing and distribution centre for non-European companies seeking to develop and maintain trading relationships within the Single European Market. The New Harbours, a free-port zone, where special benefits apply, comprises warehousing, industrial workshops and office space, is available for rental/purchase on a short or long lease term to exporting companies. The accommodation consisting of a total of 107 industrial/commercial units, is well suited to light manufacturing operations and among the advantages to companies locating there are absence of duties and taxes on imported materials, components and equipment, low rates of tax - on net profits, and rates holidays. These are also further facilities under construction. A new industrial park at the site of Lathbury Barracks (to consist of 48 units) and new premises in the area of the Port, will add to the infrastructure available to accommodate new economic activity.

Gibraltar's Finance Centre

The 'Finance Centre' describes the set of corporate vehicles and the accompanying tax regimes that make Gibraltar an attractive location for international companies wanting to carry out a wide variety of activities, certainly including banking, insurance, fund management and a number of other types of 'financial' operation, but by no means limited to finance. The essence of the Finance Centre is that it offers better terms than apply to local companies operating in the domestic market, and it's exactly this that the OECD calls 'discriminatory' or 'unfair', and the EU calls 'harmful'.

Gibraltar would have it that only companies with essentially non-domestic operations are offered the benefits of the Finance Centre, and that many countries distinguish between the taxation of domestic and non-domestic operations. Even though the OECD has backed off its attack on low tax rates as such, it is still trying to dismantle discriminatory regimes; and the EU, whatever language it uses, is simply trying to destroy low-tax competition. So Gibraltar has a fight on its hands.

The key corporate forms allowing low-tax operations in the Finance Centre are the exempt and qualifying companies. Gibraltar was the first European financial centre to introduce the exempt company as an offshore holding vehicle, and its unique status among IOFCs in relation to the EU has made it the jurisdiction of choice for certain types of investor or trader: there are over 60,000 companies registered in Gibraltar (more than two per inhabitant!) many of them being exempt. Many of these companies were set up to hold Spanish property investments during a boom in such purchases in the 1980s.

The low set up cost of exempt companiers makes them ideal for property and investment holding, international trading and sales agencies, particularly if trade is being carried on between two high tax jurisdictions. An exempt company may be either incorporated in Gibraltar under the Gibraltar Companies Ordinance, or incorporated outside Gibraltar but registered as an overseas company under Part IX of the Companies Ordinance. If a company obtains exempt status, the company will be exempt from corporate tax and stamp duty (save in certain specific instances) in Gibraltar under the Companies (Taxation and Concessions Ordinance) 1984 (as amended).

Shares in an exempt company may be transmitted free of estate and stamp duty on the death of the shareholder. An exempt company pays a flat rate annual fee regardless of profits. A company incorporated in Gibraltar which is ordinarily resident pays a flat rate fee of £225 per annum, whilst a non-resident company incorporates outside Gibraltar pays a flat rate fee of £200. Fees payable to non-resident directors and dividends paid to its shareholders are not subject to a withholding tax.

An exempt company must not, without the approval of the Financial and Development Secretary, carry on any trade or business in Gibraltar or with Gibraltarians or residents of Gibraltar except where these are other exempt companies. An exempt company may, however, manage and control its business from Gibraltar and have an office and staff locally.

The qualifying company is a variant of the exempt company, and pays tax on its profits at a rate agreed with the Financial and Development Secretary and stated on a certificate issued to the company. A qualifying company certificate is valid for 25 years from the date of issue. According to the legislation, a Qualifying Company pays tax at a rate (between 1% and 35%) to be agreed between the company and the authorities. This type of 'designer' tax arrangement is intended to allow a company to slide under the bar of its home tax regime by paying just the amount of tax required to escape anti-avoidance rules. In practice most Qualifying Companies nowadays agree to pay between 5% and 10% tax, and the form has perhaps become more the standard Gibraltar low-tax offshore entity for significant trading companies.

The Gibraltar Government understood early on that it was going to have to adjust its low-tax regimes in order to reach an accommodation with the OECD and the EU, but it did not anticipate the ferocity of the EU's demands, nor did it anticipate that the UK would leave it to fight the battle entirely without support from London. At first the Government assumed that it would be able to adopt a uniform taxation regime applying to all companies, with tax at perhaps 10% or thereabouts, comparing well with Ireland's 12.5% (as agreed by the EU), but discussions with the business sector were more difficult than expected, and the Government found itself having to consider a zero taxation regime for all companies. That in turn however is highly problematic for the Government's overall finances.

Speaking to the local media, Peter Caruana, the Chief Minister said that it would not be prudent to extend exempt status to all companies in Gibraltar stating that, "even if the amount of money we took from companies was the same as our budget surplus, so that we could theoretically let it go altogether, it would not be prudent to do so." That, he said, could lead to a dependence on revenue from tobacco which could be taken away at anytime.

The EU's attack came in September 2001, when EU Competition Commissioner, Mario Monti, speaking before the Economic and Monetary Affairs Committee, announced that the Commission had launched 'formal investigations' into tax provisions in nine countries which it deems to be unfair. Offshore and onshore jurisdictions were, for a change, fairly evenly represented in Mr Monti's hall of shame, which included Germany, Spain, France, Ireland, Luxembourg, the Netherlands, Finland, the United Kingdom, and Gibraltar.

Mario Monti made little additional comment on any of the investigations other than that examining the exempt offshore companies' rules in Gibraltar, which he said merited inclusion in the list because of doubts as to whether existing provisions were compatible with EU rules. The Competition Commissioner then said that the purpose of the investigations was not to challenge legitimate lower tax rates, but to eradicate 'harmful' tax regimes that distort competition.

The Government's response was to open a court action against the EU in the hope that it might be able to retain the current basis with no or only minor alterations. Said Mr Caruana: 'The government is legally advised that the Commission's decisions are wrong in law and have been taken in breach of several applicable procedural rules and legal principles. It is essential to leave no stone unturned in challenging these decisions, given their severe consequences for our economy, for the jobs of many hundreds of Gibraltarians and for government revenue and therefore for our collective standard of living as a community. The government remains completely committed to the Finance Centre and to ensure its continuing and competitive prosperity and is in close consultation with the Finance Centre Council on this matter.'

While the Government awaits the outcome of its action against the EU, it continues to work intensively with local businesses and professionals to craft a workable new regime that will both satisfy the EU and be attractive to international companies. A team of private sector specialist lawyers has been appointed to formulate new legislation to replace the existing laws governing exempt and qualifying companies. After meetings with representatives of the business sector in mid-October, the Government said it expected to be able to announce the outlines of a new regime within weeks.

Sources close to the negotiation say that among the possibilities being canvassed for raising additional revenue to replace lost tax is the levying of a fee on public utilities such as water, telephone and electricity suppliers. This fee would not be a direct tax, but an amount based on the proportion of revenue being collected. This, although seen as a way of creating an exemption, would not be considered as a tax and would be able to bypass the EU's threats on State Aid. Another possibility would be a 'payroll tax' as levied in other territories such as Bermuda. This would see local companies having to pay some form of indirect taxation, but would not affect offshore companies who do not employ personnel in Gibraltar, thus bypassing the tax exemptions threat and maintaining the zero offshore status.

While Gibraltar struggles to conform to the requirements of the EU and the OECD, the fashionable demonisation of offshore jurisdictions in general and Gibraltar in particular was graphically illustrated by an intemperate and inaccurate French parliamentary report issued early in October.

The French parliamentary committee on financial crime unveiled a 400-page report condemning Britain's attitude towards money laundering, suggesting a tightening up of regulations on London City-based financial services, and demanding the dismantling of offshore tax havens such as the Isle of Man, Jersey, Guernsey and Gibraltar.

The report, which follows similar diatribes against Switzerland and Monaco, was a year in the making, and criticises the UK's banks for being too secretive, political leaders for being too forgiving, and the authorities for not having enough resources. It argues that now Britain had pledged to join forces around the world to freeze the funding activities of terrorists, it was more urgent than ever to strengthen its anti-money laundering rules.

The report stated: 'The City, stronghold of world finance, continues to largely ignore its duties in the domain of money laundering ... [it is] an impenetrable fortress with a status, rights and customs of its own, a closed universe where every financier, banker or businessman chooses silence above all else. Great Britain must also dismantle the legal and banking havens of the crown dependencies and the 'overseas' territories for which it has a particular responsibility .. It is high time that Europe got worried about sheltering in its midst these veritable machines that launder criminal money [these tax havens had] at least the tacit if not explicit backing of the United Kingdom.'

The report was emphatically rejected by the UK and Gibraltar auhorities, who called it 'incompatible with reality'. In fact, the Deputies responsible for the report need not be taken too seriously - although not exactly disowned by the French Government, they are regarded as harmless, rather along the lines of the infamous UK 'Beast of Bolsover', Dennis Skinner, who gets a lot of newspaper coverage for his outrageous comments but will never have office.

The Gibraltar Government said about the report: "The comments about Gibraltar in the report rely on Spanish judicial sources and reflect the usual Spanish line on our finance centre. The French MPs visited Madrid en route to Gibraltar before compiling their report and had clearly been negatively briefed about Gibraltar whilst in Spain. Furthermore, the comments about Gibraltar in this report are wholly incompatible with reality and with the full endorsements of Gibraltar's co-operative status and highest financial regulatory standards by credible international bodies over the past year.

"Indeed the Report cannot possibly represent the French Government’s view on Gibraltar given that one of those international bodies that praised Gibraltar’s standards in June 2000, the Financial Action Task Force (set up by G7 nations) was chaired by a French Government official.

"The French MPs appear simply to have embarked on a general campaign against finance centres based on prejudices and preconceptions that they have been unwilling to discard even when faced with the facts. Indeed, when they visited Gibraltar in May 2000 the group of French MPs publicly made very positive statements about the Gibraltar finance centre and its standards.

"Both the UK Treasury and City of London regulators have strongly attacked the motives, seriousness, veracity and credibility of this report. The Gibraltar Government shares that assessment."

Spanish complicity in the French report is only too likely: the Spanish lose no opportunity to pursue their anti-Gibraltarian agenda in Paris, as they showed in July when the OECD's attempt to re-publish its list of countries offering 'unfair tax competition' was stymied by Spain's insistence that the document should incorporate a reference to Spain's rights over Gibraltar.

Gibraltar would indeed be on the revised blacklist, since it has not yet given the 'commitment' which entitles a country to be removed from the list. A recent article in the Gibraltar press alleging that the OECD was discussing the position of Gibraltar after it 'delayed signing (a commitment letter) in July' was strongly denied by the Government, which pointed out that in June the OECD decided to extend the deadline to November to allow tax havens more time to sign (an excuse to cover up the real reason, which was Spain's intransigence). 'It is not true that Gibraltar has delayed signing anything,' the Government said, 'Indeed, the Government now understands that the deadline may soon be further extended. Only one territory has given the commitment since July.'

The Government's statement confirmed that the policy and intention of the government as to the giving of the commitment remains the same, namely, that Government envisages giving the commitment, before the deadline, on the understanding that there has to be a genuine global level playing field.

The statement also criticised Spain for preventing the OECD from publishing its July update report on tax havens unless its position in relation to the sovereignty of Gibraltar is protected. In addition, says the government: 'Spain is now apparently objecting to OECD officials even continuing to meet directly with Gibraltar Government officials. Such meetings have been taking place with Gibraltar during the last two years - as with all other territories listed as tax havens. The Gibraltar Government remains happy to continue to meet with the OECD as before and has requested such further meetings.'

The government concludes that it 'deeply regrets the publication of false information which appears to confuse Gibraltar's position on the issue of giving the required commitment on tax to the OECD (which position remains unchanged and positive) with Spain's last minute sabotage of the whole OECD project by its usual trick of playing its "Gibraltar card" at the last minute when it generates maximum pressure on all other parties.'

The Spanish Problem

Spanish interference with the OECD process is of course relatively minor compared to the threat to the Rock's independence, which has recently taken on even greater dimensions as it appears that the Foreign and Commonwealth Office (FCO) under Jack Straw is getting ready to sacrifice Gibraltar on the altar of its European ambitions.

A visit to Gibraltar by Peter Hain, Minister for Europe, crystallised growing fears that the UK's long-time loyalty to the interests of Gibraltar was weakening. Whilst in Gibraltar, Mr Hain made it clear that rather than being receptive to the fears and views of the people of Gibraltar, he and his government were set on a path which would exclude Gibraltar from influencing its own destiny in the continuing 'Brussels Process' - the British/Spanish talks over Gibraltar's status which originated in 1984 and were reanimated earlier this year in Stockholm during the Swedish presidency.

Minister Hain´s patronising and threatening attitude whilst in Gibraltar was badly received by the Gibraltarians. His statement, among others, that the people of Gibraltar "will either change or be left behind" was clearly seen by the Gibraltarians as another attempt by the British Government at watering down the right of the people of Gibraltar to self determination.

The uneasy fears of Gibraltarians turned to dread and anger when, shortly after Peter Hain's departure it became clear that at Spain's request Gibraltar had been excluded from the European Single Sky Measures. Inclusion in these measures was always perceived in Gibraltar as fundamental to Gibraltar's undisputed inclusion in the EU, which she joined with the United Kingdom in 1973 under Article 227 of the treaty of Rome "as a European Territory for whose external affairs a Member State is responsible". As a local newspaper said: 'As a result of Gibraltar's exclusion from the said measures, the Rock now finds itself in the absurd state of being within the European Union, except for its airspace!'

Gibraltar's exclusion from a beneficial EU regime rankles especially because of the pressure applied over many years by the FCO convince Gibraltar to pass EU legislation, some of which has been clearly detrimental to Gibraltar, particularly to the financial services sector of the local economy. Indeed, Gibraltar has dutifully adopted a mass of EU legislation - now the FCO has 'fled at the first whiff of grapeshot' as a famous Englishman once said about the Spanish, and has capitulated in the face of Spanish pressure to exclude Gibraltar from EU measures potentially beneficial to Gibraltar´s economy.

As seen from Gibraltar, it is totally unacceptable for the FCO, which has overall responsibility for Gibraltar´s external welfare, to be openly in collusion with Spain and effectively embarking on a path of open collision with Gibraltar by failing to resist Spain´s clear economic war of attrition against the territory.

Opposition leader Dr Joseph Garcia said that the Foreign Office lacked courage in facing up to Madrid, writing in a British newspaper: 'Mr Straw and his minister for Europe Peter Hain have been singularly ineffective in standing up to the continuous and illegal harrassment on the part of the Spanish government against the 30,000 British people of Gibraltar. To add insult to injury, it has recently been announced that Gibraltar airport is to be excluded from the Single European Sky measures following political pressure from Madrid. In June, the foreign Office maintained that Gibraltar could not be systematically excluded from European Union law, and just three months later we have been left out.'

Disaffection with the UK took on palpable form on Thursday 4th October when a large proportion of the population of Gibraltar took part in a demonstration against Britain's abandonment of its Rock. With bi-partisan support (a very unusual thing in Gibraltar's usually highly divisive politics), the demonstration attracted the largest crowd ever seen in one place in Gibraltar. Government and opposition members of parliament a ringing Declaration of Unity:

We, the undersigned, being all the elected Members of the House of Assembly of Gibraltar, declare and endorse the following propositions, which unite and reflect the views of the overwhelming majority of the people of Gibraltar,

1. The people of Gibraltar will never, ever, compromise or give up our inalienable right to self-determination, that is, the right to decide our future in our land.

2. The people of Gibraltar will never compromise or give up our sovereignty, not for good relations with anybody and not for economic benefits either.

3. The people of Gibraltar will not compromise our right to self-determination, still less sovereignty, in exchange for respect for rights which are ours anyway, and which others should be made to respect unconditionally.

AND WE

a. CALL UPON Her Majesty's Government to honour, respect and uphold our EU rights by ensuring that we participate in all EC and EU measures in the same manner and to the same extent as all other citizens and territories of the European Union

AND WE CONDEMN Her Majesty's Government in the United Kingdom for capitulating under pressure to the suspension of Gibraltar from the EU Single Skies measures, and the Government of the Kingdom of Spain for demanding it.

b. REAFFIRM that Gibraltar wants good, neighbourly, European relations with Spain based on reasonable dialogue and mutual respect. Spain is obliged to respect our EU and other rights.

c. ASSERT that Gibraltar belongs to the people of Gibraltar and is neither Spain's to claim, nor Britain's to give away.

The declaration was handed to a representative of the Foreign Office for delivery to Prime Minister Blair. Copies of the declaration were also sent to the Secretary General of the United Nations, the European Parliament and the Spanish Prime Minister.

The intense anti-UK feelings being generated among the Gibraltar population were also expressed when the Governor was asked not to accept his regular invitation to attend the annual dinner of the Mediterranean rowing Club, of which he is the patron. The Queen's representative accepted the advice. Then Chief Minister Peter Caruana, in a clear demonstration that he has moved away from his long-time co-operative attitude towards the British government, cancelled his attendance at the regular annual meeting of British overseas territories in London. Other territories had placed a motion on the agenda asking Britain to uphold the European Union rights of Gibraltar, as well as describing the Spanish claim to Gibraltar as "anachronistic". The motion noted the responsibility of the UK to conduct the external affairs of the overseas territories in the interests of the people of the territories and also noted the UK decision to exclude Gibraltar from the European Single Sky measures.

Mr Caruana expressed his gratitude and appreciation to the governments of the other UK overseas territories "for this demonstration of solidarity with, and support for, the simple democratic aspirations and rights of the people of Gibraltar."

Peter Hain's statement during his visit that the territory's right to self-determination might be subject to the 300-year old Treaty of Utrecht, finally pushed the Government (which has been denying the Opposition's urging on the subject for years) to set about obtaining a legal opinion on the matter. Chief Minister Peter Caruana said shortly after the demonstration that the Government has obtained "a very, very positive" draft legal opinion from an international jurist on the issue.

The nub of the Spanish problem for Gibraltar is the question of the Brussels Process meetings. Should they be bilateral, with Gibraltar 'in attendance' (anathema to Gibraltar) or should they be trilateral? At the time of Peter Hain's visit to Gibraltar he also met his Spanish counterpart Ramon de Miguel to discuss preparations for the next round of talks under the process, which are expected before the end of the year, and to the Gibraltarians' displeasure the Spanish Foreign Ministry once again called upon Mr Caruana to take part in the bilateral dialogue between Foreign Ministers Jack Straw and Josep Pique.

The FCO is of course only an instrument in the affair - its natural preference is never to do anything to upset anyone. The real impetus to re-start the Brussels Process has come from Tony Blair, who has instructed new boy Jack Straw to resolve the 300-year dispute which is increasingly the cause of disruption for European Union business and Tony's europhile agenda.

When talks do re-start, they will have on the table what are known as the Matutes proposals, made in 1997, which embody a period of joint sovereignty over Gibraltar between Britain and Spain for at least 50 years, followed by autonomy within Spain. The UK has never until now accepted these proposals as a basis for discussion, but the fear in Gibraltar is that in its new un-coperative mood, the FCO may be capable of any kind of treachery towards Gibraltar.

Gibraltar's Chief Minister Peter Caruana said earlier in the year: "as far as I am concerned the Matutes proposals have been buried and disposed of in a manner that is entirely effective and satisfactory for Gibraltar. It is not credible to argue otherwise." Would he say the same now?

Offshore E-Commerce & Telecommunications

Gibraltar's physical and fiscal advantages as a low-tax entrepot that is both inside and at the same time outside the EU can be witnessed in its highly successful port and the supporting commercial activities that surround it - less visible but also an ongoing source of economic benefit is the growth of e-commerce in Gibraltar.

The Government has demonstrated a clear commitment to making Gibraltar an international e-business centre and firmly believes that Gibraltar is in a position to benefit greatly from developing as an information society. Evidence of early success in this direction can be found in the mushrooming growth of offshore betting and gaming that took place in Gibraltar as UK bookmakers used the possibilities of the internet to flee their harsh domestic taxation regime. Gibraltar is not the only offshore jurisdiction to have benefited from the explosive development of internet betting and gaming, but it has been stimulated by what happened to create the conditions for a wider implantation of e-business into its economy.

An important first step was to legislate for e-commerce, and this the Government achieved with the enactment of The Electronic Commerce Ordinance 2001on the 22nd March this year. The legislation facilitates the use of electronic means for transmitting and storing information and affords legal recognition to transactions effected electronically. It also provides a framework for the accreditation of electronic signatures and determines the activities and liability of service providers.

In summary the The Electronic Commerce Ordinance 2001 provides the following:

Part 1 - Information Society Services
This part contains important definitions that are pivotal to the main body of the legislation. In particular definitions are provided for "service provider", "established service provider", "information society services" and "intermediary service provider".

Sections in this part include, Interpretation, General requirements for service providers, Commercial Communications, Contracts concluded by electronic means, Information in relation to and conclusion of electronic contract. Approved codes of conduct and prescribed standards.

Part 2 - Issue of Accreditation Certificates for Electronic Signatures.
Part 2 establishes the framework for the authorisation and recognition of certification service providers. Applications for authorisation are to be made to the Minister for Trade, Industry and Telecommunications in the manner prescribed in sections 12 & 13. The recognition of overseas providers or classes or classes of such providers is dealt with through notice in the Gazette in the circumstances set out in section 14. Sub-section (2) provides the basis upon which recognition is granted.

Section 15 outlines the legal effect of electronic signatures supported by an accreditation certificate and Section 17 deals with the civil liability of approved certificate providers.

Part 3 - Transactions effected by electronic means.
Section 19 -20 deals with the requirements to present or retain originals and to produce documents. Section 21 outlines the conditions for retention of documents etc, in electronic form.

Sections 22 & 23 make provision for various important issues including the admissibility and evidential weight of data messages in legal proceedings and matters relevant to the concluding of contractual obligations through electronic communication.

Part 4 - General
This part contains a number of general provisions. Section 24 provides that in the prescribed circumstances an offence committed by a body corporate may be attributed to any director, manager, secretary or similar officer.

Section 25 introduces a general power for the making of any necessary regulations by the Minister and section 26 extends the restrictions on service providers.

Another key step to encourage the development of e-commerce was to liberalise the telecommunications environment. The Gibraltar Telecommunications Ordinance 2001 entered into force on the 19th July 2001, heralding the arrival of full liberalisation of the telecommunications industry in Gibraltar. Telecom liberalisation is the cornerstone of Europe's transition, lowering the price of communicating, and encouraging innovation and investment in new services and networks.

The Telecommunications Ordinance 2001 provides for the assignment or conferring of functions on the Minister for Trade, Industry and Telecommunications and to the Gibraltar Regulatory Authority, which has been established as a separate legal body. The previous laws relating to the telecommunications sector were the Wireless Telegraphy Ordinance and Part II of the Public Utility Undertakings Ordinance, which have been repealed, and new provisions for operators wishing to provide telecommunications services and establish or operate of telecommunications networks have been made.

The effects of liberalisation will be felt as new players come in to the market, quality improves and the prices of many services fall in real terms. On-line services, notably via the Internet, will see continued growth, as companies compete with each other to offer new service packages and new pricing formulae.

At European level, the rules that are currently applied are set out in 7 liberalising measures and 14 harmonising directives and decisions, which have now been complemented by a number of recommendations and guidelines. These have been transposed into Gibraltar law by the Telecommunications Ordinance 2000 and a set of Regulations which transpose into Gibraltar law the following European directives:

(i) Directive 90/387/EEC (on the establishment of the internal market for telecommunications services through the implementation of open network provision) as amended by Directive 97/51/EC (for the purpose of adaptation to a competitive environment in telecommunications).

(ii) Directive 90/388/EEC (on competition in the markets for telecommunications services) as amended by Directives 94/46/EC (on satellite communications), Directive 95/51/EC (abolishing restrictions on the use of cable television networks for the provision of already liberalised telecommunications services), Directive 96/2/EC (on mobile and personal communications) and Directive 96/19/EC (implementing full competition in telecommunications markets).

(iii) Directive 92/44/EEC (on the application of open network provision to leased lines).

(iv) Directive 97/13/EC (on a common framework for general authorisations and individual licences in the field of telecommunications services).

(v) Directive 97/33/EC (on interconnection in telecommunications to ensure universal service and interoperability through application of the principles of open network provision) as amended by Directive 98/61/EC (on operator number portability and carrier pre-selection).

(vi) Directive 98/10/EC (on the application of open network provision) to voice telephony and on universal service for telecommunications in a competitive environment).

Darion Figueredo, Communications & Technology Development Officer, says that the Government views these developments as fundamental for the growth and development of an information society and sees them as a major step for Gibraltar and the telecoms industry in general. The adoption of EU directives into local legislation will give Gibraltar a great advantage over other jurisdictions competing for the same market.

The Government of Gibraltar, says Mr Figueredo, is continually developing strategies to create an environment for businesses to trade electronically, speedily and securely, based on a framework of telecommunications, infrastructure and legislation to facilitate the growth of e-commerce.

The Minister for Trade, Industry and Telecommunications has set up a think tank in the field of e-business to develop the fundamental principles and elements of the Government's e-business strategy and launched its long-term vision of Gibraltar's opportunities in this field and its three year strategy to achieve this fundamental aim.

The Government's philosophy is to facilitate the consolidation of the e-business and telecommunications sectors by providing legislative, fiscal, administrative, financial, educational and promotional support to strengthen Gibraltar's presence in the e-business world.

In the period 2001 to 2004 the Government intends to take broad measures to provide flexible, simple and clear legislative frameworks that allow fair competition to thrive and contribute to the attraction of business. Fiscal structures will be developed to attract business to Gibraltar. The importation of specialist skills in the information technology field will be facilitated and adjustments to import duty for information technology equipment will be reviewed.

This has been followed with the announcement of free importation of personal and commercial computer hardware and software until March 2002 . Companies may also deduct whole of capital cost of IT investment in first year up to £50,000, in addition to the existing first year £30,000 capital investment allowance. Other schemes will be considered from time to time to encourage and facilitate inward investment.

The European Union Funding Objective 2 Programme will be fully utilised to assist the private sector to maximise its opportunities in e-business. A specific aim within the Single Programming Document submitted for approval to the European Commission is the facilitation of e-business and telecommunications projects and funds have been reserved to achieve this and to allow the expansion of small and medium enterprises. Direct Government funding will also be available for these start-ups.

It is also imperative, says Mr Figueredo, to educate, create awareness and provide training and retraining to provide and enhance skills to the existing workforce and foster job opportunities for the unemployed, school-leavers and returning graduates.

Objective 3 European Union funds will be utilised to maximise the opportunities within the private and public sectors in IT. The Departments of Education and Trade, Industry and Telecommunications will work closely to heighten awareness of and increase opportunities at all educational and training levels.

The Government aims to develop the infrastructure to ensure it can respond to technological, logistical and practical demands from the domestic or commercial user. Other areas will be developed to facilitate the transit and distribution of physical goods from Gibraltar as a result of the diversification of established or new businesses into e-business.

In parallel to the efforts to foster a better environment for e-business in Gibraltar the Government aspires to introduce greater e-thinking into the public sector and to develop g-business possibilities.

A g-Business on-line initiative is being developed to ensure that as much of the Government's business with consumers as possible is placed on-line on an interactive and non interactive basis.

The resources of the Government have been reviewed and a specific Communications & Technology Development Unit has been established to drive these initiatives.

The Government believes that Gibraltar's unique combination of factors such as sound professional expertise, high standards of regulation, location, bilingual community, fiscal advantages, access to decision makers and flexibility are well suited to consolidate Gibraltar into an attractive international e-business centre.

Gibraltar showed how it means to be pro-active in generating e-business when in August 2001 it offered itself up as a location for the currently UK based Freeserve on hearing of the ISP's VAT tussle with America Online. Freeserve had claimed that AOL was enjoying an estimated £26 million tax advantage over its peers, as due to a loophole in UK taxation law, it is not obliged to charge VAT to its British customers.

Darion Figueredo, who wrote the letter to Freeserve's CEO, John Pluthero, said that although Gibraltar recognised that it was too small to serve as the location for the main operations of any of the major telecommunications players, it hopes to attract smaller parts of the leading multinationals.