Andorra is a microstate in Europe. It is neither part of Spain nor part of France, although it shares cultural characteristics with its neighbours due to its geographical proximity. Like other countries of its type in Europe, it does not belong to the European Union or the European Economic Area. However, it has had agreements with the EU since 1990. The country is currently negotiating an association agreement to widen relations with the EU, and to give it access to the European single market. This development would undoubtedly provide the country with many opportunities for economic openness, but also with challenges in adapting to the requirements of the European body.
Table of contents:
- What is the Association Agreement between Andorra and the European Union?
The importance of the Agreement for Andorra
The impact of the Association Agreement
Relations with the European Union
Current agreements and treaties between Andorra and the EU
The international agencies and the IMF are assessing a possible partnership agreement
The next steps
What is the Association Agreement between Andorra and the European Union?
The Association Agreement with the EU would be a historic step for Andorra. Essentially, it would be a framework for co-operation designed to strengthen relations between the Principality and the EU, with a view to promoting greater political, economic and social integration. Its main purpose would be to facilitate Andorra’s access to the European single market, allowing the free movement of goods, services, capital and people.
The Association Agreement would go beyond trade or labour mobility. It would be an opportunity for Andorra to redefine its position in Europe and on the international stage. With this agreement, Andorra would benefit from access to a market of more than 500 million consumers, even if this would also involve adopting the regulatory, economic and social standards of the European body.
The importance of the Agreement for Andorra
From an economic point of view, the Association Agreement could open new doors for the Principality. One of its objectives is economic diversification. Historically, Andorra has been dependent on sectors such as banking, trade, construction and tourism, which have had to overcome periods of stagnation and vulnerability during recent crises. These included the general crisis of 2009, the banking crisis of 2015 and the COVID-19 pandemic. These challenges have highlighted the need to diversify the Andorran economy towards new sectors in order to ensure its long-term sustainable growth.
In response to these situations, since 2012 the country has been implementing reforms to open its economy to foreign capital and companies and to seek closer integration with Europe. Despite these changes, participation in the EU single market is a key strategy for diversifying and attracting new economic sectors. At the same time, Andorra’s commitment to the EU requires it to align its legislation with European standards in many areas, from environmental protection to the regulation of financial services.
The impact of the Association Agreement
With this agreement, the country would join the European Union not as a member but as an associate member. It would retain its fiscal and foreign policy autonomy and control over its borders. It would not participate in the financing of the annual budgets, nor in contributing human resources to the EU institutions. Finally, Andorran citizens would have no political rights and would not vote in European elections.
However, the agreement would facilitate the free movement of people, goods, services and capital within the European single market. This freedom of movement would be complemented by horizontal policies covering areas such as the environment, consumer protection, social policy, energy, public procurement and company law.
Relations with the European Union
Andorra has maintained a close relationship with the European Union since the signing of the trade agreement in 1990. Seven agreements have been signed in order to strengthen its position in the international marketplace, and to adapt to international regulations. In spite of this, Andorra has always managed to maintain the characteristics that make it a unique country and well positioned to attract investors and businessmen from all over the world, thanks to its political stability, good quality of life, competitive tax system and strategic geographical location in the Pyrenees between France and Spain.
Current agreements and treaties between Andorra and the EU
Relations between Andorra and the European Union have existed for more than 30 years. The first agreement was the Trade Agreement, which gave Andorra the same treatment as a Member State in terms of trade in manufactured goods, with the exception of agricultural products. In this article, we explain what the Customs Union Agreement consists of.
In 1997, the veterinary protocol was signed, allowing the exchange of animal products and supplementing the first protocol.
In 2003, the Co-operation Agreement was signed, covering the environment, communications, information, culture, transport, regional and cross-border co-operation and other social aspects.
The 2004 agreement is on the taxation of savings, which was impelled by the EU after exerting pressure on offshore companies and after the prevention of money laundering.
In 2011, the Euro Monetary Agreement was signed, allowing Andorra to adopt the euro as its currency and to mint its own euros.
The international agencies and the IMF are assessing a possible partnership agreement
In their latest economic assessment reports, the rating agencies and the International Monetary Fund are unanimous in highlighting the economic opportunities that a partnership agreement would provide for the country, as it would facilitate Andorra’s greater integration into the international scene. It would also allow companies to compete on equal terms within the single market.
The next steps
Since its launch in 2015, the Association Agreement has generated considerable debate, as it could significantly influence Andorra’s economic and social future. In December 2023, the negotiations on the aspects included in the agreement were concluded by both parties. Since then, the institutions involved have been working on the documents. The Commission will soon present proposals for a Council decision on the signature and formalisation of the Association Agreement, while the European Parliament will have to give its final assent.
The final decision on its implementation may possibly be delegated to the citizens of Andorra, who would determine the result by means of a referendum.