Introduction

Stiftung Wissenschaft und Politik German Institute for International and Security Affairs Co m ments

The Association of European Microstates with the EU WP S Integration Test with Model Value Nicola Forster / Felix Mallin

The European microstates Andorra, Monaco, and San Marino have only been partially integrated into the European single market. Consequently, there are several regulatory gaps in areas such as financial markets, the free movement of workers, as well as with- in the Schengen Agreement. Moreover, the smooth adaptation of Community acquis is being hampered. In December 2013, the European Council called for the negotiation of a framework Association Agreement with the three countries. For Brussels, the rap- prochement of these countries might also serve as a test run for dealing with other European countries whose full membership is rejected either by the EU or by the state concerned.

Due to their limited internal markets and use of the potential that the single market foreign political capacities, the European offers. They also hope to increase legal cer- microstates rely on smooth foreign policy tainty and achieve greater independence cooperation with the EU. For a long time, from their neighbours. Because of their they smartly agreed to attach themselves comparative political insignificance, they to the EU via bilateral treaties with their have hardly been able to stimulate much direct neighbours. Hence, the microstates political interest on the part of the Member adopted the euro as their common cur- States. Although, in principle, most Mem- rency, while San Marino and Andorra are ber States support a continuing rapproche- also part of the EU Customs Union. As a ment, effective political and economic consequence of ever-deepening European interest is limited to the respective neigh- integration, the microstates have had to bours of the AMS countries. call upon the EU more frequently instead of their direct neighbours – France, Spain, and Italy. For a few years, Andorra, Monaco, Conformity of the EU legal realm and San Marino (here: AMS countries) have Brussels is interested in deeper institution- been endeavouring to redefine their hither- al integration in order to close regulatory to fragmentary and incoherent relations gaps in the midst of Europe and to ensure with the EU. Their goal is to make better the uncomplicated comprehension of Com-

Nicola Forster, President of the Swiss think tank foraus – Forum Aussenpolitik, was a Visiting Fellow at SWP’s Brussels office. SWP Comments 27 Felix Mallin was an intern at SWP’s Brussels office from August to November 2013 and then a Visiting Fellow until March 2014. June 2014

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munity acquis. If Switzerland, the micro- The implementation of foreign policy states, and the special territories are not can easily create dilemmas for the micro- progressively integrated, these entities will states as they pursue their own interests persist as regulation exclaves that block the while also taking the interests of their EU’s efforts at conformity and coherence. powerful neighbours into consideration. For a long time, this was the case in fi- While San Marino – the world’s oldest re- nance and tax regulation affairs, until the public – enjoyed comparatively unrestrict- microstates sought to dissociate themselves ed decision-making in the past, the co-prin- from their stigmatisation as tax havens. In cipality of Andorra has repeatedly been the meantime, all AMS countries have been exposed to restrictive stipulations by Paris, crossed off the OECD’s list of uncooperative Madrid, and – due to the constitutional role tax havens and are currently negotiating of the Bishop of Urgel – sometimes also the an anti-fraud agreement with the EU. Still, Vatican. Hence, the decision over the recog- Andorra, for instance, has not yet intro- nition of Kosovo became a diplomatic bal- duced an income tax or an inheritance tax. ancing act for Andorra, which was entrap- Also the free movement of workers is ped between the conflicting positions of almost exclusively dealt with through bi- Spain and France. Despite pressure from lateral arrangements with the respective Madrid, in the end a decision was taken to neighbours. San Marino, for instance, has favour recognition. Similarly, the debate concluded a free movement agreement about the possible independence of Cata- only with Italy, as a result of which the fle- lonia has the potential to set off a fuse in xibility of workers and enterprises in San Catalan Andorra. The government, how- Marino is significantly limited. Especially ever, has a strong interest in not sacrific- since the beginning of the economic crisis ing its good relations with Madrid. in Italy, this represents a major challenge Since the French president, as acting co- for the volatile economy of the small prince of Andorra, occupies an exceptional country. position – and because of the political en- tanglement with Monaco – France, as a protecting power, is able to directly exert Strengthening of sovereignty political co-determination in two countries. The foreign ministries and diplomatic rep- Monaco, on the other hand, which is the resentations of the microstates only have a smallest of the AMS states by far, is the least few dozen diplomats at their disposal – too independent with regard to foreign policy. few to cope with the increased exigencies Deeper European integration would there- of foreign policy. fore also increase its sovereignty vis-à-vis The focus, thus, is directed on the diplo- France and, as such, provide more legal cer- matic representations to the EU, the United tainties and political calculability. With the Nations, and the neighbouring countries. perspective of integrating the AMS coun- To be able to manage the administrative tries more thoroughly, the special status of requirements of common legislation with France may, in the long term, prove to be the EU, the microstates have streamlined unsustainable. their politics towards Europe. EU legisla- tion is absorbed with immediate effect. EU regulations are only introduced if absolute- Liechtenstein as a model ly imperative. Andorra, for instance, which It is hardly surprising that, for inspiration for a long time had no direct aviation con- in their own endeavours, the AMS countries nections to Europe, saw itself obliged to are turning to Liechtenstein, which has introduce the European Aviation Regula- achieved an advantageous position in Eu- tory Framework in order to build a heli- rope in terms of conducting its own foreign port. policy. The principality, which is interna-

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tionally acknowledged as the prime exam- The belief is that the administrative ca- ple of a successful microstate, was able to pacities of the microstates are insufficient strengthen its sovereignty vis-à-vis Switzer- to absorb new Union legislation. Further- land through its membership in the Euro- more, the complex decision-making mecha- pean Economic Area (EEA). Since EEA legis- nisms of the EU are not designed for such lation is directly adopted as state law, there small states. With regard to potential EEA are no legal uncertainties. As a geopoliti- accession, it is especially Norway that is cally irrelevant microstate – and therefore opposed to the idea. The official reason strongly dependent on the protection pro- given is to avoid any complications in the vided by international law – Liechtenstein EEA’s internal decision-making. However, has earned itself a reputation in multilat- Norway may also be interested in obviating eral organs as being an advocate for the a shift of influence towards a microstate consolidation of international law. Liech- alliance. tenstein’s diplomats and legal experts have This stonewalling attitude is incompre- demonstrated their commitment to the hensible for the AMS countries, which point EEA. Hence, the small country was able to out that neither the EU (with the accession overcome prejudices against the insuffi- of Malta) nor the EEA (with Liechtenstein) cient institutional capacities of a micro- have seen any subsequent lack in opera- state with regard to constructive participa- tional capabilities. tion in multilateral organs. Liechtenstein The signals sent by the AMS states also was also able to secure a special provision vary, depending on the different integra- for the free movement of persons. Citizens tion options in question. Current political of the country enjoy full freedom of move- ambitions and existing integration regimes ment within the EU, whereas quotas re- vary widely amongst all three. Andorra is main in place for EU citizens. This dero- showing the strongest political will to fur- gation exemplifies the ability of the EU to ther its integration and seems to be in- take the specific circumstances of micro- creasingly modelling itself on Liechten- states into consideration, if necessary. stein. Thus, it is not unlikely that Andorra will attempt to accede to the EFTA and, in the medium term, also the EEA. For that Status of negotiations with the EU purpose, however, Andorra would need When the relationship of the EU with the to be able to demonstrate corresponding members of the European Free Trade Asso- administrative capacities and be able to ciation (EFTA) came under scrutiny for the contribute financially to the EFTA Secre- first time during the rotating EU Presidency tariat. of France in 2008, the question about the San Marino is also interested in further- relationship with the remaining Western ing its integration: A referendum held in European states – the AMS countries – was September 2013 resulted in a narrow ma- also raised. In 2011 open-ended consulta- jority opting for the submission of a formal tions were initiated, with the goal of work- accession request to the EU. However, the ing towards closer cooperation with the necessary quorum was missed. Therefore, three states. Originally, it was not only the the EU membership objective has now Association Agreement currently being given way to the elaboration of an Asso- debated, but also EEA and even EU mem- ciation Agreement with the EU. bership under consideration. Both latter Monaco, on the other hand, is seeking to options have since been put on the back facilitate certain trade activities. Contrary burner, as Brussels doubts the AMS states’ to Andorra and San Marino, the country abilities to fulfil all obligations tied to participates in the Customs Union only membership. through an indirect treaty via Paris and is aspiring to direct single-market access.

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Monaco has no democratically legitimised pean identity and wish for preferential parliament and, hence, does not fulfil one treatment compared to other third coun- of the necessary accession requirements. tries. Moreover, the country would not be willing Although the political and economic to accept all four freedoms of the EU in embedding of the AMS countries in the EU their entirety: Owing to its small internal is advancing, the countries have not been labour market, the country fears in parti- given any powers of co-decision. Thus, they cular the introduction of the freedom of are increasingly becoming underprivileged, establishments and services. France, which passive, quasi-members of the EU. For third does not want to relinquish its dominant countries that are willing and able to inte- position in the triangular Monaco-Paris- grate, the EU needs solutions beyond purely Brussels relationship, is keen for Monaco economic involvement – as provided by the to achieve a special status, or even a tri- EEA, for instance. lateral agreement. For that reason, the In a broader context, Brussels needs to

© Stiftung Wissenschaft und official wording in the Commission docu- reflect on a number of conceptual consid- Politik, 2014 ments reads “one or several agreements” erations: How to proceed with third coun- All rights reserved with regard to the association of the AMS tries whose participation in the single These Comments reflect countries. market is desired, but whose full accession solely the authors’ views. In order to guarantee a uniform ap- is unrealistic? The expected commence- SWP proach and to minimise the time and effort ment of negotiations with the AMS coun- Stiftung Wissenschaft und involved, one option would be the conclu- tries could, in this respect, prove to be a Politik German Institute for sion of a framework Association Agree- model for the handling of candidates for International and ment. Several enclosed protocols could ex- independence such as Catalonia, the Faroe Security Affairs plicitly cater to the particular specificities Islands, and Scotland. The stipulated prin- Ludwigkirchplatz 3­4 of all microstates. Such a framework Asso- ciples could then be applied to integration- 10719 Berlin ciation Agreement could determine the opposed states such as Switzerland, and Telephone +49 30 880 07-0 Fax +49 30 880 07-100 institutional rules and provisions, which even to current members wanting to with- www.swp-berlin.org would then form the basis for future trea- draw from the Union voluntarily. [email protected] ties between the EU and the AMS countries. An association regime designed particu- ISSN 1861-1761 First and foremost, mechanisms and terms larly for the AMS countries could extend (English version of for the adoption of EU legislation would the spectrum of integration options of the SWP-Aktuell 21/2014) need to be determined. Furthermore, a EU in the long run, and might later serve monitoring authority for the implementa- as a promising alternative for other can- tion of new treaties and the arbitration of didates. disputes would be required. The Court of Justice of the European Union could likely take on this role.

AMS integration as a test run for other states Even though the last word has not been spoken, the message from Brussels is clear: More integration through association, but most likely no EU or EEA accession. From the perspective of the AMS countries, the quest for an appropriate association solu- tion is not only an economic imperative, but also an important signal to their own citizens, who generally have a strong Euro-

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