Although Gibraltar is joined to the Spanish mainland by a narrow isthmus, the residents have an island mentality. Over the last three centuries, the Rock has been attacked and supply lines cut off numerous times, most recently when Spain's last dictator, Franco, sealed the border for 13 years.

Since 1986, there has been relatively free movement between Gibraltar and Spain, which has enabled a degree of 'normality' to be established in relations between the two national administrations.

However, whilst Gibraltar residents have twice voted to emphasise their determination to remain part of the UK
– the most recent referendum was in 2002 when 99% of votes were cast in favour – Spain continues to claim historic ownership of Gibraltar.

Chief Minister Peter Caruana has been relentless in his efforts on the one hand to ensure constant UK support for the territory, and on the other, to improve cooperation and dialogue with Spain. But maintaining that position has been a balancing act in political and practical trade cooperation.

The most recent conflict is Spain's listing of Gibraltar waters as Spanish in information for the European Commission, which is now reviewing the issue - with the UK defending Gibraltarian rights! Policing of Gibraltar's territorial waters under international law has since led to tensions with Spain.

Since adoption of the New Constitution four years ago, Gibraltar is accountable for almost all that happens in the territory, except that as a British Overseas Territory, the UK is responsible for defence and foreign relations. Therein lies the problem – and Caruana's impelling need to maintain a balance. As he explains, "The UK is the member state responsible for Gibraltar in the EU, but we are not part of the UK nor are we a member state of the European Union in our own right."

Caruana's task is to ensure Gibraltar's interests are protected by keeping its needs at the forefront of Ministers' and UK government officials' minds 1,000 miles away. Within the EU, Gibraltar has - with the support of the UK - defended its right to set taxes independent of the UK at the European Court of Justice following an appeal by Spain and a ruling is expected in the summer.

For a brief period, half way through this past decade, the UK and Spain explored the idea of bilateral talks on Gibraltar sovereignty, but Caruana quickly pushed it into the long grass by refusing to cooperate. Instead, in 2006 he successfully got Spain, Gibraltar and the UK to embark on tripartite talks to end restrictions on air space, customs at the border, telecommunications and pensions. The UK has since repeatedly confirmed it will not do anything without the people of Gibraltar's approval.

Whilst Spain's desire to claim Gibraltar as its own remains the underlying issue, a balance has been struck and is emphasised by the words ending official statements on the tripartite talks: "We have reaffirmed that... any agreements ... would have no implications whatsoever regarding sovereignty and jurisdiction."

The new airport terminal being built is an example of pragmatism, because it has been positioned immediately adjacent to the border fence and provides for Spain to build an independent access point, meaning passengers from Spain can be treated as though they had not left the Schengen travel area, of which Gibraltar is not part.

Trade Relations

The advent of financial services, particularly over the last decade, has dramatically altered Gibraltar's historic balance of trade. Like the City of London, the local finance sector attracts business from outside on a scale that is out of proportion in relation to the size of the economy.

Whilst historically, the UK remains the main non-petroleum export partner mainly through added-value services (Gibraltar having virtually no manufacturing), which have doubled in 10 years, overall imports outpace exports by 2:1. North Africa is the 'big opportunity'.