ANDORRA

Principality of Andorra

Principat d'Andorra

COUNTRY OVERVIEW

LOCATION AND SIZE.

Andorra, a tiny landlocked principality in southwestern Europe, is situated in the eastern Pyrenees Mountains, bordered on the north and east by France and on the south and west by Spain. It comprises a region of 7 narrow valleys and the adjacent peaks reaching heights of more than 2,700 meters (about 8,860 feet) above sea level. Also named the Valleys of Andorra, the country has an area of only 468 square kilometers (181 square miles), about 2.5 times the size of Washington, D.C., or about half the size of New York City. The capital is Andorra la Vella (Andorra of the Valley), with a population of 21,985 in 1996.

POPULATION.

The population of Andorra was estimated at 66,824 in July 2000, up from 64,716 in 1998. Although mountainous, the country is densely populated, with an overall density of 138 persons per square kilometer (358 per square mile). The population, however, is unevenly distributed, and is concentrated in the 7 urbanized valleys that form the country's parishes (political districts): Andorra la Vella, Canillo, Encamp, La Massana, Escaldes-Engordany, Ordino, and Sant Julia de Loria. Andorra has a slow population growth rate of 1.22 percent, fueled by a birth rate of 10.58 births per 1,000 population, a death rate of 5.27 deaths per 1,000 population, and a high net immigration rate of 6.9 migrants per 1,000 population (all according to 2000 estimates). The Andorrans have a very high life expectancy at birth, standing at 83.46 years for the total population (80.56 for men and 86.56 for women). This is attributed partly to the pleasant mountainous climate, and partly to the prosperous economy and sufficient health care provisions in the country. The population is aging, as in much of the rest of Europe, with 15 percent of the Andorrans younger than 15 years, 72 percent between 15 and 64 years, and 13 percent 65 years or older.

Native Andorrans, curiously enough, represent a minority (only about 33 percent of the population) in their own country; they are Catalan in their culture and language. The official language of the principality is also Catalan, a romance language, spoken also by more than 6 million people in the regions of French and Spanish Catalonia (in southwestern France and northeastern and eastern Spain and the Balearic islands in the Mediterranean). More people of Andorran descent live outside the country (particularly in France) than in their home country, because historically, as in many similar societies with very limited land supply, land ownership has been strictly passed on to the oldest heirs while the rest often have had to seek their fortunes elsewhere. Spanish, French, and Portuguese immigrants (both working people and entrepreneurs) make up the majority of the population of the principality, and the Spanish, French, and Portuguese languages are widely spoken. Spaniards (Catalan-speaking or not) form the largest single ethnic group in the country with 43 percent; Portuguese constitute 11 percent and French 7 percent. Roman Catholicism is not only the predominant religion but also the religion of the state, unlike most European countries that strictly separate the church from the state. For example, only Roman Catholics are permitted to marry in the country, and all public records pertaining to issues such as birth, death, and family status are still kept by the church. Pilgrimages to the shrine of the Andorran patron saint, the Lady of Meritxell, are very popular among believers. The education law requires school attendance for children up to age 16 and a system of French, Spanish, and Andorran lay (secular) schools provides education up to the secondary level. Schools are built and maintained by the Andorran government but salaries for teachers are paid for the most part by France or Spain. About half of the Andorran children attend the French primary schools, and the rest attend Spanish or Andorran ones, which suggests that the role of the French language in the country's culture, communication, and business life will grow in the future.

OVERVIEW OF ECONOMY

Due to its small size and isolated mountainous location, Andorra has preserved its political independence over the years. But these factors also contributed to its economic and developmental impoverishment before World War II. The economy historically has been based on pastoral farming, the processing of tobacco and timber, and the smuggling of goods (mainly tobacco) into the neighboring regions of France and Spain. Over the last 4 or 5 decades of the 20th century, however, the principality has achieved considerable prosperity. This has been mostly due to its status as a tax-free port, the rapid development of tourism in Europe, the dramatic economic progress of its large neighbors France and Spain, and the European integration processes. Many investors and immigrants, both legal and illegal, are now attracted to its thriving economy and its lack of income taxes .

Tourism has been developing at a high rate since the mid-1950s and now dominates the principality's economic life. The extensive winter ski facilities, the cool summer climate, and the availability of inexpensive goods in the stores attract numerous tourists to Andorra's humming summer and winter resorts. With about 270 hotels and 400 restaurants, as well as many shops, the tourist industry provides a livelihood to a growing portion of the domestic and immigrant labor force .

Trade in consumer products is also very active, mostly in imported manufactured items, which, because of their duty -free prices, are considerably cheaper than in other European countries. Partly due to this, smuggling in the country, once a major livelihood, is still widespread. Duty-free status and the price differences between Andorra and its neighbor countries, however, are seen as a serious problem by the European Union (EU) and have had a very significant stake in the debate concerning the principality's relationship with the union. Andorra is a member of the EU customs union and is treated as an EU member for trade in manufactured goods (for which there are no tariffs ), yet its duty-free shopping status gives it an edge over EU member states. However, the country's comparative advantage in duty-free shopping has been negatively affected as the economies of neighboring France and Spain have been liberalized and opened up over the 1990s, resulting in lower tariffs and a wider choice of consumer items.

Negotiations on maintaining Andorra's duty-free status and developing its trade links with the EU began in 1987, soon after neighboring Spain was admitted to the union. A difficult agreement, in effect since July 1991, has set some duty-free quotas and placed limits on certain goods such as tobacco, alcoholic beverages, and dairy products. But as of 2001, Andorra was still allowed to maintain its price differences from other EU countries, and visitors could still enjoy limited duty-free allowances. By creating a modern legal framework, however, the 1993 constitution has allowed Andorra to begin the needed shift from an economic model substantially based on duty-free shopping to one relying largely on international banking and finance.

Andorra's gross domestic product (GDP) for 1998 was worth US$1.2 billion, with tourism providing by far the principal component (roughly 80 percent). GDP per capita was a healthy US$18,000 in 1996.

POLITICS, GOVERNMENT, AND TAXATION

Independent since 1278, for more than 7 centuries Andorra has been ruled jointly by the leader (the king, later the president) of France and by Spain's Roman Catholic bishop of the diocese of Urgel, who were acknowledged as "co-princes." Andorra's government, however, had no clear-cut division of powers into executive, legislative, and judiciary, as in most other (and virtually all democratic) states, until the late 20th century. Only in 1993 did Andorran voters approve their first written constitution, transferring all power to the parliamentary principality and proclaiming a sovereign parliamentary democracy. The constitution defined for the first time the rights and obligations of the citizens and the functions and specific terms of the separate legislative, executive, and judicial branches of the government.

The co-princes remained officially Andorra's heads of state, and they serve coequally, with limited powers and without the right to a veto over government acts. Presently, the co-princes are Jacques Chirac, the president of France, and Monseigneur Juan Marti, the bishop of Urgel. Naturally, they do not participate in person in the government's deliberations but are represented by delegates. As co-princes of Andorra, the president and the bishop maintain formally their supreme authority to approve international treaties with France and Spain, as well as all those state acts that deal with important internal security, defense, Andorran territory, diplomatic representation, and judicial or penal cooperation. Although the institution of the co-princes is viewed by many liberals as a medieval anachronism, the majority of the people of Andorra still regard them as an important symbolic element of their historical traditions and a practical way to mediate and balance the influence of both France and Spain. It is also worth mentioning that, until 1993, the principality of Andorra paid every other year, as the medieval treaties stipulated, a tribute worth US$2 to the French president and US$8 to the Spanish bishop. The bishop was additionally entitled to receive a contribution consisting of 6 hams, 6 cheeses, and a dozen live chickens.

The Andorran legislature is the General Council (founded in 1419), which has 28 members, elected to 4-year terms. There is universal suffrage in Andorra, with citizens over the age of 18 having the right to vote. At least one representative from each of the 7 parishes must be present for the General Council to meet. Historically, within the General Council, 4 deputies from each of the 7 parishes have been included in the representation. This arrangement lets the smaller parishes, who have fewer than 400 voters, be represented by the same number of delegates as the larger ones that have more than 2,500 voters. To correct this imbalance, the new constitution included a provision that introduced a modification of the process of electing the Council members; under this new arrangement, half of the delegates were to be selected by the traditional system by parishes and the other half elected from nationwide lists.

The executive power is vested in the Executive Council, headed by a president (in Catalan, the cap de govern, or head of government) who is chosen by the General Council and then formally appointed by the co-princes. The president appoints the other executive members of the council.

In the judiciary, civil cases are heard in the first instance by batlles (4-judge courts), with 2 judges each appointed by a co-prince. Appeals are heard by the one-judge Court of Appeals. The highest judicial body is the 5-member Superior Council of Justice. The Tribunal of Courts in Andorra la Vella hear all criminal cases. Andorra has no standing armed forces and only a small domestic professional police brigade. All able men possessing firearms serve without compensation in the reserve army, unique in treating all its men as officers. The army's principal responsibility is to carry the Andorran flag at official ceremonies; it has not fought a battle for more than 700 years.

Andorra's young democracy is in the process of redefining its political party system. In recent years, 3 out of the 5 parties that dominated the political scene have dissolved. The former Liberal Union (UL) is reshaping itself and changing its name to the Andorran Liberal Party (PLA), intending to offer a political umbrella to small parties and groups that have not yet consolidated. The currently ruling party is the PLA, led by the cap de govern, Marc Forne. The Social Democratic Party (PSD) attracts groups previously aligned with socialist ideals, and the third major party is the National Andorran Coalition (CAN). Given the number of parties and Andorra's size, no one party controls the General Council; therefore, legislative majorities arise through coalitions.

The fundamental impetus for the recent political transformation was a recommendation by the Council of Europe in 1990 that if Andorra wished to attain full integration in the European Union (EU), it should adopt a modern constitution which guarantees the rights of those living and working there. A Tripartite Commission made up of representatives of the co-princes, the General Council, and the Executive Council drafted the 1993 constitution. Since its adoption, the government has continued to address many other long-awaited reforms. In addition to legalizing political parties and trade unions for the first time, freedom of religion and assembly also have been guaranteed.

Since its sovereignty was established with the 1993 constitution, Andorra has become an active member of the international community. In 1993, it established its first diplomatic mission to the United Nations in New York, and in 1995, it established diplomatic relations with the United States. Andorra also has expanded relations with other nations and is a full member of many international organizations, such as the United Nations (UN), the United Nations Educational, Scientific and Cultural Organization (UNESCO), the International Telecommunications Union (ITU), and the Organization for Security and Cooperation in Europe (OSCE). Since 1991, Andorra has a trade agreement with the EU.

The Andorran government collects revenue through the sale of postage stamps and a very small number of local taxes.

INFRASTRUCTURE, POWER, AND COMMUNICATIONS

Landlocked, mountainous Andorra has no railroads, harbors, or airports, but possesses a good road system and three-fourths of its nearly 270 kilometers (169 miles) of roads are paved. The country is rich in hydroelectric power and the power plant at Les Escaldes, with a capacity of 26.5 megawatts, provides 116 million kilowatt hours annually (1998), or about 40 percent of Andorra's electricity, while Spain and France provide the rest.

Andorra has a modern telecommunications system with microwave radio relay connections between the exchanges and land line circuits to France and Spain. There were 31,980 main telephone lines in use and 8,618 cellular phones in 1997. Andorra had 15 FM radio broadcast stations in 1998 but no local TV broadcasting stations, French and Spanish broadcasting and cable TV being widely available.

ECONOMIC SECTORS

Andorra's natural resources include iron and lead deposits, marble quarries, forests of pine and birch, hydropower resources, strips of fertile land in the valleys, and extensive pastures on the mountain slopes. But the economy is mostly influenced by the excellent skiing areas, the pleasant climate, and the crossroads location of the country. Nearly four-fifths of the GDP in 1998 was generated in the tourist and other related service sectors; about one-fifth was generated in industry, including construction and mining; and just about 1 percent in agriculture. The labor force was distributed by occupation as follows: agriculture, 1 percent; industry, 21 percent; services, 72 percent; and other sectors, 6 percent (1998 estimates). The most important industries included tourism (particularly skiing), cattle raising, timber, tobacco growing, banking, and retail . Before World War II, most families made their living off farming, tobacco and timber processing, and smuggling, but since the 1950s tourism has been the bulwark of economic progress. With the gradual dismantling of Andorra's duty-free shopping advantages in the course of EU liberalization, the economy will become gradually more dependent on banking and finance services.

AGRICULTURE

Andorra's territory is ill-suited for agriculture, comprising mostly rugged mountains traversed by narrow valleys

with scarce arable land making up only 2-3 percent of the total area. Pasture lands suitable for sheep grazing cover about 45 percent of the territory, mostly the lower mountain slopes, and forests cover approximately 35 percent of the land. Agriculture, nevertheless, was the core of the Andorran economy until the boom in tourist activities in the 1950s. Sheep raising has usually been the principal agricultural activity, but tobacco growing, although limited, has been more lucrative, especially given the long-time Andorran tradition of smuggling tobacco products into the neighboring regions of France and Spain. Apart from the timber-related activities, agriculture products currently include small quantities of tobacco, rye, wheat, barley, oats, vegetables, and sheep products. Most food has to be imported from France and Spain.

INDUSTRY

In addition to traditional local handicrafts, manufacturing in the principality includes cigars, cigarettes, timber processing, and furniture for the domestic and export markets. Raw materials such as timber and iron and lead ore are also produced, and mining and construction are important sources of revenue and employment. However, construction is still unable to provide adequate housing at affordable prices for many of the families that migrated to Andorra over the last several decades. Given its relative size, Andorran industry is not able to play a significant role in European markets; however, it provides livelihoods for the local people, additional income for the economy, and also caters to the needs of the larger tourist and retail sectors.

SERVICES

Tourism, the powerhouse of Andorra's tiny but prosperous economy, accounts for roughly 80 percent of GDP. An estimated 9 million tourists (more than one-fifth of the number of visitors to Spain) visit the principality annually, attracted by its resorts, good ski facilities, pleasant summer climate, mineral waters, and duty-free shops. The small but vital banking sector—integrated with both the French and Spanish banking systems but maintaining its tax haven status—contributes substantially to the economy. In the mid-to late-1990s, the Andorran government passed a series of laws to strengthen the banking sector and deter activities such as money laundering . Retail trade is thriving, particularly in imported manufactured goods, notwithstanding the problems issuing from current EU liberalization and the substantial lowering of tariffs in competing neighboring countries that have diminished Andorra's advantages as a duty-free shopping area. The retail sector is comprised mostly of small privately-held stores.

INTERNATIONAL TRADE

International commerce is crucial to Andorra's otherwise isolated economy. In 1998 the country exported US$58 million worth of goods and services, while importing US$1.077 billion. This massive trade deficit is made up for largely by the booming tourist economy. As is to be expected given its tight integration with France and Spain, these countries are its dominant trading partners. The majority of the country's exports, 58 percent, went to Spain in 1998, while France received 34 percent. Imports in that year originated mostly from Spain (48 percent) and France (35 percent).

MONEY

Andorra has a traditional budget surplus , with revenues of US$385 million and expenditures of US$342 million, including capital expenditures, as estimated in

1997. The units of currency are both the Spanish peseta and the French franc. Both Spain and France, along with 9 other members of the EU, are in the process of changing over from their national currencies to the single currency of the EU, the euro, for all transactions. The euro started to be used in 1999, initially only for electronic bank transfers and accounting purposes. Euro coins and bills are planned to be issued in 2002, when the peseta and the franc will cease to be legal currency. The EU members have established the European Central Bank (ECB) in Frankfurt, Germany, responsible for all EU monetary policies . Since 1999, control over Spanish and French monetary issues, including interest rates and regulating the money supply, has been transferred to the ECB.

POVERTY AND WEALTH

Before World War II, Andorra was still living to a large extent in the ways it had known since the Middle Ages. Most of its people were rather poor and lived off small-scale farming, sheep breeding, and smuggling. Even now, many families still continue to live in the old farmhouses, and life still focuses on the family and the Roman Catholic Church. International tourism and European integration since the 1950s thoroughly modernized the country within several decades and most Andorrans have turned from agriculture to family hotels and restaurants, store-keeping, and various other tourism-related services. Currently, with an affluent service-based economy and a low inflation rate of 1.62 percent in 1998, Andorrans enjoy very good and comparatively equitable living standards and very high life expectancy. No extreme cases of poverty or very large private fortunes are currently known. Due to the high number of working immigrants, attracted over the past several decades mostly by jobs in the services industry, housing in Andorra is now probably the most acute social issue. Although many locals still live in their traditional family houses, housing is currently scarce; the construction sector is not yet in a position to address the challenge adequately, and the tiny real estate market in Andorra remains highly speculative.

WORKING CONDITIONS

The labor force in Andorra included 30,787 salaried employees in 1998, and the unemployment rate was very close to zero. Trade unions were legalized for the first time only after 1993, and modern social institutions are still in the early phases of development. But the most significant labor-related issue recently has probably been the re-qualification for Andorran citizenship, a major challenge in a country where still only 13,000 people (20 percent of the population) are legal citizens. Citizenship issues are economically very important because the law allows non-citizens to own no more than a 33 percent share of a company, even if it is a small business. Citizenship problems generate major troubles for the enterprising immigrants forming by far the most dynamic economic group in the country. Only after residing in Andorra for 20 years are they entitled to possess full ownership of a business. A draft law aimed at reducing the required years from 20 to 10 is currently being debated. In 1995, a new, more liberal citizenship law was passed, but Andorran nationality nevertheless remains very hard to acquire. Only Andorrans can transmit it to their children, birth on Andorran soil does not confer it automatically, and dual citizenship is prohibited. Lawful permanent residents in Andorra may be naturalized only after 25 years of residency, and their children may opt for citizenship at 18 only if they have resided all of their lives in the country.

COUNTRY HISTORY AND ECONOMIC DEVELOPMENT

803. Andorra is given independence by the emperor Charlemagne, who names it a "March state," or buffer state created to keep the Muslim Moors of Spain from advancing into Christian France.

1278. Andorra comes under the joint suzerainty of France and Spain through the Catalan bishops of Urgel and of the counts of Foix of France. Throughout the Middle Ages and modern times up to World War II, Andorra remains outside the mainstream of European history, with limited ties to countries other than France and Spain. The economy is limited to small farm agriculture and forestry and is helped by smuggling.

1607. The head of the French state and the bishop of Urgel are established as the co-princes of Andorra.

1950s. International tourism starts to grow with the emergence of post-World War II western European welfare societies, the growing income and leisure time of the Europeans, and the increasing attractiveness of both neighboring France and Spain as two of the world's top tourist destinations. Tourism revenues, foreign investment, and the rapid development of tourist infrastructure profoundly change the way of life in the course of a single generation and attract for the first time in the country's history many immigrants, lured by the opportunities for business and jobs offered by the economic boom.

1970. Women receive the right to vote.

1987. Andorra starts trade talks with the EU.

1993. Andorra adopts its first constitution and is admitted to the United Nations.

FUTURE TRENDS

The Andorran economy is now very closely related to those of France and Spain and is dependent on the overall trends in the EU. Despite positive recent changes in the economy, related to the increasing role of modern services, it is likely that Andorra will, at least over the next few years, continue to confront a number of problems arising from the large influx of foreigners and the need to develop modern social institutions.

In addition to questions of Andorran nationality and immigration, the country's priorities will include addressing housing scarcities and the tough real estate market, reinvigorating international tourism, and renegotiating its trade relationship with the EU.

The results of Andorra's polls so far have indicated that the people generally support reform initiatives and believe that the country has to integrate into the EU in order to preserve and develop its economic prosperity. It is likely that it will be successful in shifting from duty-free shopping to finance and other services as the second major economic sector and revenue source.

DEPENDENCIES

Andorra has no territories or colonies.

BIBLIOGRAPHY

Andorra. <http://www.andorra.be/eng/index.html>. Accessed July 2001.

Economist Intelligence Unit. Country Profile: Andorra. London: Economist Intelligence Unit, 2001.

Global Investment Business Center, Inc. staff. Andorra: A Country Study Guide. International Business Publications, February 2001.

U.S. Central Intelligence Agency. World Factbook 2000. <http://www.odci.gov/cia/publications/factbook/index.html>. Accessed August 2001.

U.S. Department of State. U.S. Department of State Background Notes: Europe: Andorra. <http://www.state.gov/www/background_notes/eurbgnhp.html>. Accessed January 2001.

—Valentin Hadjiyski

CAPITAL:

Andorra la Vella.

MONETARY UNIT:

No local currency; French and Spanish currencies are both used in the country. Both Spain and France, along with 9 other members of the European Union (EU), are in the process of changing over from their national currencies to the single currency of the EU, the euro, for all transactions. This transition will be completed with the introduction of euro coins and bills in January 2002.

CHIEF EXPORTS:

Tobacco products, furniture.

CHIEF IMPORTS:

Consumer goods, food, electricity.

GROSS DOMESTIC PRODUCT:

US$1.2 billion (purchasing power parity, 1996 est.).

BALANCE OF TRADE:

Exports: US$58 million (f.o.b., 1998 est.). Imports: US$1.077 billion (c.i.f., 1998 est.).