Parliamentary Assembly

It is a great honour and an emotional time for me, both as an Andorran citizen and Head of the Government of the Principality of Andorra, to participate in the second part-session of the Parliamentary Assembly when Andorra holds the chairmanship of the Committee of Ministers.

Andorra has been a member of the Council of Europe for almost 20 years, but this is the first time it has held the chairmanship of the Committee of Ministers of this Organisation, which has for decades been a benchmark for consultation and agreement among peoples, the spreading of democratic values and respect for fundamental rights.

Holding the chairmanship of the Committee of Ministers has been emotional for me. Not so long ago, the legal personality of the Principality of Andorra was not recognised internationally, despite the fact that Andorra was one of the most ancient States of Europe and one of the most stable institutionally. Until our adoption, by referendum, of a constitution in 1993, our very old country was considered to be a sort of rara avis on the continent. Andorra’s accession to the United Nations and the Council of Europe shortly afterwards was the culmination of aspirations of generations of Andorrans who wanted the Principality of Andorra to be fully integrated into the international community. Thanks to its new constitution and accession to the United Nations and the Council of Europe almost 20 years ago, Andorra finally managed to receive international acceptance for its political system. Andorra’s accession to this Assembly, which brings together almost all the peoples of the old continent, was particularly significant.

It may be appropriate to remind ourselves that it was an individual petition against Andorra before the European Court of Human Rights in 1989 that catalysed the domestic constitutional reforms of 1993. We succeeded thanks to the work of this Assembly. You were a driver for our work that resulted in the adoption of the constitution and for the international acceptance of Andorra. The Council of Europe has played an important if not decisive role in the development of the co-Principality. This was not just at the outset, but throughout the past 20 years – through various reports and recommendations adopted by your Assembly and through the transposition of texts adopted by the Committee of Ministers into our internal standards.

Throughout its more-than-60 years of history, the Council of Europe, with its convention system, has managed to give full meaning to a well-known quote of Voltaire, which is more prophetic today than ever. He said: “I would like every public decision maker who is on the verge of doing something very stupid to say to himself, ‘Europe is watching you’”.

After half a century of peace and democracy in western Europe, the memory of the two World Wars is slowly receding into the distance. It might seem that institutions such as this one no longer have a raison d’être, yet the economic and financial difficulties that we have been experiencing show just how fragile the foundation on which our societies rest is. Such crises have strengthened the enemies of human rights and democracy.

The Principality of Andorra is unequivocally committed to the European construction and, more specifically, to the consolidation of human rights, the resolution of conflicts based on dialogue, and the values of democracy. Our commitment harks back to the creation of the Andorran State at the end of the 13th century.

In 1278, after centuries of confrontation, the agreement signed between the Bishop of Urgell and the Count of Foix on the sovereignty of the valleys of Andorra resulted in a unique institutional balance that has resisted all the upheavals of history – a balance that turned Andorra into an oasis of peace and respect for the most fundamental freedoms in a Europe otherwise in convulsion.

Over the centuries, although Andorrans remained vassals of our co-princes, we benefited from more freedom and liberty than most of our neighbours. In more recent times, Andorra has been a refuge, a shelter, and a welcoming country for many people who have been persecuted in conflicts beyond its frontiers, particularly during the Spanish Civil War and the Second World War.

Now, perhaps more fundamentally, Andorra has managed to realise the spirit of concord and respect for the rights and freedoms of which the Council of Europe is emblematic today. The Andorran chairmanship-in-office started almost 18 years to the day after our accession to the Council of Europe. As our Minister of Foreign Affairs, Mr Gilbert Saboya Sunyé, stressed in Tirana on 9 November last year, this celebrates our coming of age in the international arena.

Our chairmanship-in-office comes at a crucial time for the Principality of Andorra – a time that is almost as decisive as the process that resulted in the adoption of our constitution in 1993. Almost 20 years ago, Andorra achieved international acceptance and recognition of its political and institutional system. The time has come to ensure the recognition of its economic system. Economic acceptance of the Principality of Andorra by the international community is the major challenge which Andorrans have been confronted with over the past 20 years. The present Government of Andorra certainly intends to take up that challenge.

The growth model built up in Andorra in the second half of the 20th century has had unprecedented success. It quickly transformed a rural economy in a mountainous area into a model economy based on commerce, trade, tourism and the financial sector. That model has been a source of great wealth and comfort for Andorrans, as well as for all residents of Andorra who have come to our country, mainly from neighbouring countries. However, at a time when we intend to modernise our institutions, there are some warning signs that indicate that this growth model is flagging. The traditional sectors of the Andorran economy will continue to be important in the future, but it has become obvious that they must be fleshed out with viable new alternatives.

The current challenge for Andorra continues to be the transformation of its economic growth model. Although that model has worked well, I can identify three fundamental gaps. It is excessively closed – almost endogenous; it cannot be accepted at the international level; and it is insufficiently diversified. For years now, successive Andorran Governments have sought various ways to correct all those weaknesses, which are, of course, interrelated.

Before I say what economic progress has been made over the past few years and talk about some ideas for the future, let me briefly refer to the past. It would be unfair to accuse previous generations of building an excessively closed and non-transparent Andorra because it was probably our best bastion against a Europe that was very different from the one that I hope we will leave to our children. That was our response to a world that was very different from the one that we know now. It goes without saying that the Andorra of exceptions and privileges, of navel-gazing and closing in on oneself and of being exceptional is no longer appropriate in the 21st century. That is why we have sought for a number of years to build a more competitive basis for our economy in Andorra. Economic openness cannot be undertaken or understood without international acceptance of our economic system.

What was Andorra’s starting point? We had an economy based on three sectors that worked very well, but they were all closed in on themselves and the consequence was a lack of transparency in the area of taxation. In fact, the financial sector in Andorra always co-operated in combatting money laundering and the financing of terrorism or other criminal activities in Europe and well beyond. We were very conscious of this, and Andorra was never a problem country.

The most significant progress achieved over the past few years relates to co-operation in the combatting of tax fraud. Since the signing of the Paris Declaration in 2009, in which the Principality of Andorra committed itself to making progress in the exchange of tax information at the administrative level, our country has signed about 20 tax information exchange agreements. That has made it possible to start to negotiate, and even to sign some bilateral agreements that eliminate double taxation, which was penalising and expensive in the export of services from Andorra.

We are moving towards being open and accepted by the international community and away from being exceptional. In parallel with the signing of various tax information exchange agreements, the first bilateral agreement to avoid double taxation with the French Republic was signed last year and recently ratified. Andorra has now put in place a new tax model that can be fully accepted by other European tax systems.

To get a sense of how far the reforms being implemented by Andorra have gone, it is important to understand that just two years ago the Andorran tax system was based almost exclusively on indirect taxation, such as taxes on imports of goods and services. In 2011, we introduced individual taxation of tax non-residents. In January 2012, we introduced a corporate tax and tax on economic activity. This January, we reworked all our indirect taxes and merged them into a general indirect tax that is very much like value added tax in many other countries. Furthermore, my government has committed itself to submit to parliament a draft law on the taxation of income from labour and capital before the summer – very soon now – and the objective is to complete the architecture of a new Andorran tax system before the end of the present legislature in 2015.

To summarise, in just four years, Andorra will have moved from a sui generis tax system essentially based on indirect taxation to one that is fully in line with the tax systems of other countries. That will provide a reasonable balance between direct and indirect taxation, with a broad tax base, to avoid any gaps and guarantee the competitiveness of our economy. I would make so bold as to say that few countries are capable of putting in place such far-reaching reforms in just four years. We are a small country, but that does not mean that we incapable of making great efforts.

The fact that Andorra has chosen transparency and co-operation is a clear, sincere and resolute commitment, and I see no possibility for backtracking in this regard. The result of our commitment, which has been made concrete by the setting up of an internationally accepted tax system, must be the signing of bilateral agreements to avoid double taxation, and I remind you that the French Republic and the Principality of Andorra signed an agreement to avoid double taxation just a few weeks ago. We hope that our negotiations with Spain will continue and will be successful, and we also intend to engage in similar negotiations with Portugal. The signing of those agreements will be the cornerstone of our new economic model, which will mean international acceptance of our economy and the setting up of a solid base allowing economic openness with the necessary guarantees.

The first challenge for Andorra was to move from the Andorran exception to international acceptance. The second is to replace closure with openness. Just two years ago, when my team and I took responsibility for governing the country, the Andorran economy was considered to be one of the most closed in Europe – even in the world. In most sectors, foreign capital in our companies was limited to 49% and foreign residents needed to be resident for 10 or 20 years, depending on where they came from, before they could access full economic rights.

Last June, our Parliament approved a substantive change to the regime governing foreign investment, which now allows up to 100% foreign capital in our companies in all sectors. Furthermore, we have done away with the obstacles to the creation of and participation in foreign businesses and to the participation of foreigners in the professions. In particular, we gave full economic rights to all residents from the very first day of their residency in the Principality. I think that gives you a sense of our efforts.

We hope that the radical changes to our economic model will have consequences that can be observed over the next few years. They certainly show that Andorra is committed to integrating its economy into those that surround us on the basis of co-operation, transparency and fairness. We are convinced that greater integration of economies at an international level will strengthen relations between people and result in a gradual equalisation of citizens’ rights and living conditions. We resolutely believe that human rights, democracy and the rule of law can take root to a greater extent when one ensures economic progress, the generation of wealth, the creation of opportunities for all and the fair distribution of social costs and taxation. That is why our decision to have an economy that is more accepted and more open is in line with our permanent commitment to better co-operation at an institutional level.

When I talked about the weaknesses of the former Andorran economic model, I was talking about an economy that was too closed, was not very diverse and was not internationally accepted. International acceptance and openness go hand in hand, and the reward will be diversification. Through economic diversification, Andorra must return to its competitive differences and advantages to identify its strong points and its weak points. We are resolved to move from the Andorran exception to competitiveness and we know that, to be competitive, we need an economy that is open and integrated. An open and integrated economy requires co-operation, openness and transparency, but we know that that will not be sufficient. We must maintain and strengthen our competitive advantages, by which I mean those that are licit and not the exception.

Let me guess what competitive advantage you are thinking of: light taxation. It is true that Andorra is a country with light taxation. The tax system is acceptable internationally, but the rates are low. That is true and it is legitimate. It is our commitment for the development of a reasonably sized public sector and effective services. When we ask foreign investors why they are interested in Andorra, we hear all sorts of answers but, curiously, light taxation is rarely mentioned as a decisive factor. That is why, when we talk about competitive advantages, we directly associate them with the diversification potential of our economy.

Let me use the cultural and tourist sectors as an example. We have a lot of experience in that regard. Andorra has a population of barely 70 000, yet every year we receive 8 million visitors who are attracted by our winter and mountain tourism and by attractive shopping. In a very small space, Andorra has a concentration of shops, hotels, restaurants, wellness and spa centres, ski trails and other leisure activities. That enables us to think that our country has the right ingredients to develop projects using new communication and information technologies, particularly those related to commerce, shopping and tourism, which will continue to be important for our economy. Let me give another example. Thanks to a union between the powerful Andorran tourism sector and the health and wellness sector, we can offer health tourism. In both cases, the rationale is the same. Using the sectors that are solidly rooted in our country, we want to diversify our economy by opening up new sectors. When we talk about competitive advantages, that is what we have in mind.

Quite a few countries in Europe and elsewhere in the world have light taxation, but Andorra has other advantages and other trump cards. We are visited by a number of tourists: 100 times greater than our population. Andorra has a large concentration of shops, hotels and various leisure activities and the urban world can be found right next to the rural world – all in a very limited territory. That is why we say yes to international acceptance but no to uniformity. Andorrans want to preserve their identity, as we did 20 years ago when we changed our political system to make it internationally accepted. Our constitution preserves our territorial structure as well as our very special institutional architecture, which is unique. We are the only parliamentary Co-Principality, with seven centuries of history. We want to continue down the road of co-operation and acceptance, but we do not want to lose our authenticity. On the contrary, we want to strengthen it. Is that ultimately the philosophy of the European construction process of which the Council of Europe is the guiding light, uniting efforts and building bridges to guarantee the right to be different while having a common system of values that makes it possible for us to live together in harmony?

I have talked about my country’s efforts to be more transparent and co-operative, about the speed with which we have approved and put in place tax reform, and about the change to the paradigm that leads to economic openness and the challenge represented by the diversification of our growth model. As you might imagine, in talking about that I cannot fail to mention the European Union and its relations with Andorra. Since 1986, when Spain formally became a member of the Common Market, Andorra has become an island surrounded by the European Union. The entry of our southern neighbour into the European Economic Community was interpreted by many analysts as the detonator of the major changes that had to be introduced into the Andorran economy. The government of the time was very well aware of this and quickly negotiated and concluded a customs agreement with the European Economic Community which was signed in 1990. This agreement set up a customs union between the Principality and the countries of the European Union – which at that time, before the creation of the European Union, were the countries of the Common Market. After that agreement we had a co-operation agreement in 2003, and an agreement on the taxation of savings in 2004. More recently, Andorra signed a monetary union with the European Union which makes the use of the euro in the Principality official. This constitutes a first step towards closer relations between my country and our European neighbours in the European ocean that surrounds us.

The road to accession has been rejected, at least for today, because it is an impossible option to accept for a country such as Andorra, which has such a small territory. We seek rather to join a structure such as the European Economic Area or something similar which is specifically adapted to small States. We observe that the Union is positively predisposed to such ideas. We are also studying the possibilities opened by the Lisbon Treaty to find a stable solution to relations between Andorra – and countries with characteristics that are similar to ours – and the European Union. However, the process of Andorran reform would be incomplete if it were not accompanied by greater participation by our country in the European internal market. Similarly, European construction would not be complete if it did not find a solution for third countries with very small territories, such as Andorra, which are nevertheless profoundly European. We therefore need the understanding, the complicity and the assistance of our European neighbours.

Over the past few years, as I said, Andorra has made very major efforts indeed. It has opted for transparency and co-operation. We know that that must be continued and that we must work on it daily. We have built a completely new tax model in a very short time. Although that was an issue of internal politics, we have done it in a spirit of co-operation with the outside world. We have managed to open our economy in a very far-reaching way and have extended rights for foreign residents. We are also working on defining a new model of relations between our country and the European Union. However, it is also necessary that Europe be aware of the changes that we are implementing and the very fast pace of our reform implementation.

We certainly believe in multilateralism – and if Europe does not, who will? We believe that all the countries represented in this Assembly and in other forums meet on an equal footing despite their differences and different characteristics. We believe in the fundamental principles that are accepted by all European nations. We cannot renounce that if all countries are to find their place in Europe.

In the 18th century the Andorran politician Antoni Fiter i Rossell advised people in his book “Maxims” to keep the roads leading to the valley of Andorra in poor condition because, the author said, it would then be very difficult for foreign armies to invade our country. He also suggested that we be very careful about foreigners taking up residence in Andorra. This advice was very judicious 300 years ago. However, the economic development of Andorra during the 20th century could not have occurred without the construction of modern roads linking us to France and Spain. Furthermore, the tens of thousands of foreigners who have taken up residence in Andorra because they have found opportunities there that they did not find in their countries of origin, and who have now become Andorrans, have certainly contributed, at least for the most part, to the economic and social progress of our country. So we have moved from a closed, navel-gazing Andorra to an open, transparent and co-operative Andorra.

It will soon be 20 years ago that the Speaker of the Andorran Parliament appeared before your Parliamentary Assembly to formalise the accession of our country into the European concert of nations. At the time, Andorra was perceived by Europe as a very old country that had found its place in the international community; today, we are a country that is in the process of finding its place in a global economy, an economy which must increasingly integrate on the basis of transparency, fairness and the other principles that guide us.

Ladies and gentlemen, parliamentarians, thank you very much for your attention.