UK stranded between the Rock and a hard place

Jim Brunsden in Brussels and Ian Mount in Madrid

When Theresa May triggered the UK’s EU divorce proceedings last week, one of her priorities was to reassure the British public that the Brexit negotiation process would be handled firmly and, as far as possible, smoothly.

By Sunday, as one of her predecessors as Conservative party leader alluded to war with Spain to defend Britain’s interests, it was clear that this had not gone to plan.

The origin of the dispute lies in the negotiating document circulated by Brussels that made clear that Spain should have a say on Gibraltar’s post-Brexit trading relationship with the EU. For Mrs May, it is an early skirmish at the start of an international negotiation that promises to be unprecedented in its breadth and complexity.

What is behind the flare up?

The row began on Friday when Donald Tusk, European Council president, circulated his draft negotiating guidelines on Brexit to national capitals. The document contained a single sentence saying that once Britain had left the EU, no deal between the EU and the UK “may apply to the territory of Gibraltar without the agreement between the Kingdom of Spain and the United Kingdom”.

The wording appeared to wrongfoot London and sparked fury in Gibraltar, which viewed it as a backdoor attempt by Spain to push for sovereignty over a territory it has long sought to regain. “Spain is even prepared to use the already vexed Brexit issue to try to advance its cause by a millimetre or two,” said Fabian Picardo, chief minister of the British territory.

Boris Johnson, foreign secretary, said Britain would “remain implacable and rocklike in our support for Gibraltar”. Michael Howard, a former Tory leader, was more forthright, recalling how Margaret Thatcher sent soldiers to the Falklands in 1982 “to defend the freedom of another small group of British people against another Spanish-speaking country”. Lord Howard added he was “absolutely certain” Mrs May “will show the same resolve in standing by the people of Gibraltar”.

What does the EU stance mean?

Legally speaking, it does not mean much at all. The gist of the wording is that the Spanish veto applies to Gibraltar’s inclusion in any future EU-UK trade deal. In practice, Madrid would have such a veto anyway. Europe’s recent free-trade agreement with Canada has established the precedent that wide-ranging deals — such as that sought by the UK — must be ratified in all EU countries, Spain included, to take effect.

It is understood that the wording was included in the document after pressure from the highest levels in Madrid. Sources said Mariano Rajoy, Spain’s prime minister, lobbied Mr Tusk at a summit of leaders from the centre-right European People’s Party, in Malta, the day before the guidelines were circulated.

However, Charles Brasted, a partner with law firm Hogan Lovells in London, said no matter how it appeared, the negotiating document “cannot possibly give Spain a veto it does not already have”. He added: “These are guidelines, this is a negotiating policy and it cannot change legal rights and obligations.”

So why is it important?

For Madrid, the inclusion of the wording is a diplomatic coup — and emblematic of a wider shift. This point was driven home in a weekend interview with Alfonso Dastis, Spain’s foreign minister, in El País newspaper. “We have talked with our partners and the [EU] institutions in recent weeks and we have made the Spanish position clear,” he said. “When the United Kingdom leaves the EU, then the EU’s partner is Spain, and that when it comes to Gibraltar the EU is obliged, as a result, to take the side of Spain.”

So while not legally relevant, the wording is politically significant: the message is that Spain’s interests will be pushed to the fore.

And when it comes to Gibraltar, Spain’s sensitivities run far and wide. In the context of Brexit, one of the more worrisome for the UK is Madrid’s complaint that Gibraltar’s airport is illegally located on Spanish land.

A Spanish diplomat told the FT last month that any deal on the UK’s access to the EU’s aviation market cannot apply to the airport, as it would imply “recognition of the legal right of the UK to the territory”.

Other Spanish complaints have centred on Gibraltar’s low tax rates, which Madrid argues is a source of unfair competition. Luis de Guindos, Spanish finance minister, has described the country’s fiscal regime as a “permanent headache’.’ It is another reason why Madrid will be vigilant about the territory’s market access.

What happens next?

Despite Lord Howard’s words, Britain is not about to go to war with Spain. Instead, David Davis, Brexit secretary, is planning to hold talks with the Spanish government to smooth over the issue.

Mr Tusk’s guidelines also remain a draft, to be discussed and agreed on by national governments. At this stage, the final wording is to be decided.

But whatever role — big or small — Gibraltar ends up playing in the EU exit talks, the spat is a reflection of a reality that London is going to have to get used to: that the rest of the EU now has a fundamentally different relationship to Britain, one in which London’s concerns are less paramount.

Mr Tusk made this clear when he unveiled the draft negotiating guidelines, saying the move last week to trigger Article 50 had been transformative. “The UK is now on the other side of the negotiating table,” he said. /The Financial Times