Spain scores a win on Gibraltar

Back in August, when a dispute arose between Britain and Spain over customs checks on traffic into and out of Gibraltar, the weight of opinion was that Britain had the better of the legal argument. (See my earlier report here.) The British duly complained to the European Union, and two months ago a team of inspectors was sent to investigate.

Last week the European Commission found, rather surprisingly, in Spain’s favor. Specifically, it said it had “not found evidence to conclude that the checks on persons and goods as operated by the Spanish authorities at the crossing point of La Línea de la Concepción have infringed the relevant provisions of Union law.”

The Commission expressed concerns about the management of the border crossing and suggested greater co-operation between the two sides. It also said it would continue to monitor the situation and called for a further review in six months time. But for now, Spain has won its point.

As one would expect, the Commission expressed no view at all on the underlying politics of the dispute. Even if it’s true that the motive for Spain’s action was a desire to punish the Gibraltans for building an artificial reef, and/or to appeal to nationalistic voters by diverting their attention from the state of the economy, the Commission doesn’t really care – provided the measures themselves were lawful.

The ostensible reason for the checks, and the thing that makes them permissible, is the fight against tobacco smuggling. Like most anti-smuggling efforts, it’s a losing battle. According to the BBC, “Cigarettes are around 40% cheaper in Gibraltar than they are in Spain,” so the potential returns from exceeding the official limits on cross-border traffic are quite large.

And with Spain’s economy still in the doldrums (unemployment in La Línea is said to be about 40%), that’s an appealingly simple way for locals to make some much-needed extra money.

It’s all a bit like the Hungarian passport question that we looked at last week. There’s a common European policy on freedom of movement, but that’s coupled with powers remaining in the hands of the individual nation-states that have the ability to gum up its working in practice. In this case, it’s differential taxes on tobacco that create an arbitrage opportunity, and in turn bring powers to try (without much effect) to stop smugglers taking advantage of it.

So much for the single market. If the EU were to take its free trade mandate seriously it could simply tell its members that they have no more business controlling the flow of tobacco and alcohol than of any other legal product – in effect, legalise the smuggling trade. But that would set off a “race to the bottom” in excise levels, and in turn bring huge pressure for some sort of enforced harmonisation.

The EU is really no different from most federal systems, in that their chief initial object is the elimination of internal trade barriers. That’s why federal constitutions almost invariably give the federal government, not the lower-level units, power over interstate trade. (It’s the very first enumerated power, for example, in section 51 of the Australian constitution.)

But that power has a way of snowballing. Unless states are to be self-sufficient communities of their own (which of course would defeat the point of federation), interstate trade and domestic economic policy keep impacting on each other. If the levers of each are in different hands, things can get messy.

In the United States, this was the sort of problem that famously led the Supreme Court once to rule that a farmer who grew wheat on his own farm to feed his own chickens was engaged in “interstate commerce” and could therefore be regulated by Congress.

If the EU is to continue down the road of greater economic and political integration, there will probably be a lot more of this sort of problems ahead.