1. The Treaty of Utrecht
The status quo in Gibraltar is the legacy of dynastic aspirations for maintaining a balance of power
in European affairs among the French Bourbons and the Austrian Habsburgs and of British imperialism. To preserve the balance of power, the other European powers aimed to prevent the union of France and Spain under the Bourbon dynasty. The source of the sovereignty dispute between Spain and the UK is Art. X Treaty of Utrecht
7 The purpose of the intermediate paragraph quoted in para. 6 was to ensure that Gibraltar remained Christian after passing to British sovereignty. The treaty also contains a British undertaking not to grant any assistance to ships from Arab countries. This provision was to enable Spain to maintain uninterrupted communication with Ceuta and Melilla. The UK has not complied with these provisions, and Spain has never made much of their violation. Both provisions have become unenforceable with the development of general international rules on non-discrimination, such as the prohibition of racism.
8 From the beginning, the Treaty of Utrecht caused much controversy. Subsequent treaties periodically confirmed it, though none shed additional light on its interpretation (Treaty of Madrid ; Treaty of Sevilla ; Treaty of Aix-la-Chapelle ; Treaty of Paris ; Treaty of Versailles ). Spain occasionally alleged that British violations of the Treaty of Utrecht, such as smuggling, the presence of Jews and Arabs on the territory, and the extension of British control beyond the garrison, nullified the treaty. At times, the UK offered to return Gibraltar in exchange for an alliance, for territorial concessions in the New World, or for Spanish neutrality during World War II.
2. Spanish and British Claims
9 To underscore its claim to sovereignty over all of Gibraltar, Spain sometimes argued that the term propriety in the Treaty of Utrecht entails less than the expression fee simple in English land law. Also, a limit upon British sovereignty over Gibraltar could result from the phrase ‘without any territorial jurisdiction’. However, a cession thus restricted is difficult to square with the treaty’s text. The context and purpose of the entire paragraph indicate that this limitation applies only to the territory around Gibraltar, not to Gibraltar itself. Uniform treaty language (‘full and entire propriety’, ‘to be held and enjoyed absolutely and with all manner of right for ever, without any exception or impediment whatsoever’ in Art. X Treaty of Utrecht) points to a complete transfer of title and sovereignty over Gibraltar to Britain.
10 Another major disagreement with present-day implications centres on the cession’s territorial scope: the isthmus and the sea surrounding Gibraltar. Spain maintains that the cession was limited to the town, the castle, port, and fortifications, as they existed in 1713. In the negotiations leading to the Treaty of Utrecht, Great Britain claimed two cannon shots of ground around Gibraltar. France and Spain adamantly refused this demand on several occasions. In later centuries, the UK invoked an alleged rule of customary international law that two cannon shots of land were automatically included in any cession, in the absence of any indication to the contrary.
11 The UK gradually extended its control beyond Gibraltar’s fortifications, occupying about one square kilometre of the isthmus. Its position is that this part of the isthmus was also ceded in 1713. As an alternative basis of title over part of the isthmus under its control, the UK has referred to the exclusive British control and the alleged acquiescence of successive Spanish governments that would have forfeited any claim that Spain may at one time have possessed. Spain maintains that it has continuously objected to any claimed extension of British jurisdiction beyond the town’s limits. In view of the Treaty’s unambiguous text and repeated refusals to cede more than Gibraltar itself, it is doubtful whether the UK has a right to any part of the isthmus. The UK has also claimed that the cession included a three mile territorial sea around Gibraltar, a claim which Spain has repeatedly denied by reference to the Treaty’s silence. The difficulty arises because Art. X Treaty of Utrecht does not define the maritime space included in the port’s cession. On its accession to the UN Convention on the Law of the Sea ([concluded 10 December 1982, entered into force 16 November 1994] 1833 UNTS 397), Spain declared that ‘this act cannot be interpreted as recognition of any rights or situations relating to the maritime spaces of Gibraltar which are not included in article 10 of the Treaty of Utrecht of 13 July 1713 between the Spanish and British Crowns’ (see the Declaration of Spain Made Upon Ratification of the UN Convention on the Law of the Sea [done 15 January 1997] 33 UN Law of the Sea Bulletin 9).
12 A further source of long-standing friction concerns Gibraltar’s status as a free port, and, in modern times, its status outside the EC Customs area (see paras 27–31 below; Free Ports) which has facilitated the smuggling of duty-free goods out of the territory. Spain has often complained that the UK has given little assistance in interdicting the unlawful movement of goods across the Gibraltar frontier. Spanish attempts to prevent smuggling in the disputed waters of the Rock have led to confrontations with some frequency. Gibraltar’s role as an offshore business centre with more than thirty thousand companies registered in Gibraltar has also given rise to controversy. Offshore financial services account for a substantial part of Gibraltar’s economy, and online gambling accounts for more than 10% of the workforce. In December 2008 the European Court of First Instance held that Gibraltar’s corporate tax regime did not contravene EC law—a testament to the gradual strengthening of the territory’s regulatory framework (Joined Cases T–211/04 and T–215/04 Government of Gibraltar and United Kingdom v Commission). However, both Spain and the Commission of the European Communities appealed, and the case is currently pending before the European Court of Justice (‘ECJ’; Cases C–106/09 P and C–107/09 P  OJ C141/22 and C141/23). Offshore finance generally has come under increased pressure in the wake of the global financial crisis which started in 2008. On 31 March 2009 the Agreement between the Government of the United States of America and the Government of Gibraltar for the Exchange of Information Relating to Taxes was signed, Gibraltar’s first agreement of this kind.
13 Between 1984 and the early 2000s, discussions over sovereignty took place in the framework of the Joint Communiqué Agreed by the Foreign Ministers of the United Kingdom and Spain of 1984 (‘Brussels Declaration’). Gibraltarian representatives participated in the Brussels process as part of the UK delegation until December 1987, but did not do so after that date. The aim of the Brussels process is to resolve all differences between the governments over Gibraltar, including sovereignty. Substantial progress was only possible once both governments wished to unblock the discussions by striving for a comprehensive and permanent settlement in the early 2000s, recognizing that a resolution of technical matters (see paras 32–33 below) was insufficient to resolve the dispute.
14 In 2002 the UK and Spain agreed on a tentative plan for sharing sovereignty over Gibraltar. In exchange, Spain would guarantee enhanced local autonomy to Gibraltar, protect its local culture, and tax regime. Also under the plan, Gibraltarians would retain British nationality. By contrast, agreement on the shared use of Gibraltar’s naval base remained elusive. The UK had proposed to convert it into a NATO base under British sovereignty to which Spain would have access. The British government invited Gibraltarian representation in its bilateral talks with Spain under the formula ‘two flags, three voices’. However, the government of Gibraltar chose not to participate without a formal veto.
15 The Report of the British Foreign Secretary Jack Straw to Parliament ([12 July 2002]  408 House of Commons Parliamentary Debates 1166) stated that even though no final agreement had yet been reached, the government was in broad agreement with Spain on many of the principles that should underpin a lasting settlement. The Foreign Secretary also made clear that the UK would only ratify a treaty with the consent of Gibraltarians. Moreover, any agreement on shared sovereignty needed to be permanent and existing military arrangements needed to continue. In the House of Commons, opposition to the government’s tentative plan was strong. The concerns centred on Spain’s long-standing aspirations to regain full sovereignty, the alleged slippery slope from shared sovereignty to full Spanish sovereignty, and the alleged lack of respect for the wishes of Gibraltarians. In November 2002, by referendum, 98.5% of Gibraltarians rejected the plan to share sovereignty with Spain. It has since been shelved.
16 In 2004 the Spanish and British Foreign Ministers consulted further on how to establish a new forum for dialogue on Gibraltar, with an open agenda, in which Gibraltar would have its own voice. The Tripartite Forum for Dialogue was launched in December 2004. Its focus on technical issues distinguishes it from the Brussels process (see Section E below).