Why has Gibraltar become an issue in Brexit negotiations?

Downing Street confirmed on Monday that, despite a weekend of sabre-rattling by senior Conservatives, Britain will not be sending a Falklands-style military task force to defend Gibraltar against Spain's claim of sovereignty over the Rock.

Former Conservative leader Michael Howard invoked the Falklands on Sunday, urging British prime minister Theresa May to show the same resolve towards Spain as Margaret Thatcher did towards Argentina in 1982, when a 10-week war left almost 1,000 dead.

The trigger for Howard's bellicose bluster was last Friday's EU draft negotiating guidelines for Brexit, which said that, after Britain leaves, "no agreement between the EU and the UK may apply to the territory of Gibraltar without the agreement between the kingdom of Spain and the UK".

Until now, the EU has remained neutral on the future status of Gibraltar, which Spain ceded to Britain under the Treaty of Utrecht, which ended the War of the Spanish Succession in 1713. Spain has long sought to regain possession of the Rock, which measures just over two square miles and is home to 30,000 people. Gibraltar is a British overseas territory, or colony, and has been in the EU since Britain joined in 1973.

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After last year’s Brexit referendum, in which more than 95 per cent of Gibraltarians voted to remain in the EU, Madrid said Gibraltar could do so if it agreed to joint sovereignty under Spain and Britain. Gibraltar rejected joint sovereignty by 98 per cent to 2 per cent in a referendum in 2002 and Britain has promised not to enter into any negotiations about Gibraltar’s sovereignty without the support of its government.

Joint sovereignty

Spain cannot veto the terms of Britain's departure from the EU, which require only a qualified majority in the European Council and a majority in the European Parliament. But the terms of any future trade deal, which cannot be agreed until after Britain has left, will need the approval of all member states and ratification by their national parliaments.

Spain insists that no such trade deal can apply to Gibraltar unless it accepts joint sovereignty. Under the Spanish proposal, Madrid and London would manage the Rock’s international relations and migration, Gibraltarians would be granted dual nationality, and Gibraltar’s system of self-rule would remain “virtually intact”.

Gibraltar, which has no natural resources or agricultural land, is increasingly dependent on financial services and online gaming, which between them account for 40 per cent of its GDP. Spain complains that the Rock has implemented a zero-tax system for foreign companies operating there and offers a privileged tax regime to certain companies which create non-transparent competition for Spanish and European tax systems.

Loss of access to the European single market would damage Gibraltar’s financial services sector and restrictions on free movement of people could create problems for an estimated 10,000 Spanish citizens who cross the border to work in Gibraltar every day.

Britain is likely to keep to its promise not to enter into negotiations about Gibraltar’s sovereignty behind its back (although it did just that before the 2002 referendum on joint sovereignty). But May’s spokesman on Monday stopped short of confirming that it would insist that any future EU-UK trade deal would also apply to Gibraltar.