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A young country with an ancient history
Andorra's transformation from feudal state to modern nation

One of the oldest states in the world, the Principality of Andorra - a modern country set in the heart of the Pyrenees - has preserved the ancient traditions and rich cultural heritage gathered during a thousand years of history.

Andorrans believe that as the largest of Europe's micro-states, their country benefits from the best of all worlds. "Andorra has enjoyed a separate identity and social and political independence for more than 1,000 years, but at the same time it is one of the world's youngest nations," Head of the Andorran Government Marc Forne'explained. "The combination of these two characteristics allows us to maintain our traditions in a spirit of constant renewal and progress."

Andorra remained under a semi-feudal form of government, ruled by joint princes who together represented secular and religious authority, from its formation in 1278 until 1993 when its constitution as a parliamentary democracy was approved by popular consensus. "Before the constitution, Andorra rested on the solid pillars of the Co-Princes," Forne said. "Today, the situation has changed dramatically: the Andorran people alone is responsible for its own future."

Yet the royal tradition continues with the two Co-Princes - the President of France Jacques Chirac and the Spanish Bishop of Seu d'Urgell, Monseigneur Juan Marti Alanis - serving jointly as Heads of State, each represented in Andorra by a delegate in what is described as a "parliamentary co-principality."

Andorrans fill strong historical ties to their system of government. Forne explained the Co-Princes are symbolic guarantors of the permanence, continuity and independence of Andorra; but also of a spirit of parity which underlines its relations with its historical neighbors. He stressed that the "asymmetric personality of both" has been the base of Andorra's existence. "They reign, but they do not govern," he said. "They arbitrate and moderate public authorities and institutions, but they do not intervene in politics."

Andorra's Ambassador to the United States, Juli Minoves-Triquell, believes Andorra's ancient tradition is its greatest strength. "No other country in the world has enjoyed 500 years of democracy and 721 years of peace," he said. "In the United States, the name of Andorra is romantic: for many it seems a country of fairy tales."

Creating a political sphere
During the last two decades Andorra has had to adapt its institutions to the needs of the modern world while retaining its own identity. The process culminated on March 14, 1993 with the adoption of its first constitution, under which the principality became a state in its own right, and its legislative, executive and judiciary powers were separated.

Forne believes Andorra's struggle towards political modernity has been well worth the fight. "During many years, Andorra remained isolated half way between Spain and France. Now a new Andorra, truly independent, looks at the 21st century with a new political system keeping with the needs of the modern world," he said.

The political structure, still based on that inherited from medieval times, has until recently made Andorra unusual among European states. It is a country with no property registration or valuation, no currency of its own, no military infrastructure -defense is the responsibility of France and Spain- or trade unions, and one which has only very recently written itself a penal code -the nation is practically free of crime.

Andorra is also peculiar in that it has neither income tax nor valued added tax. The only tax on individuals is one on residents, collected by the Communes (municipalities) - the maximum amount of which rarely exceeds $100 annually. Moreover, the maximum proportion for employees' social security contribution is 6%. Both factors have contributed to make Andorra's per-capita income one of Europe's highest.

According to President of the General Council (Andorra's parliament) Francesc Areny, "Andorra is a tiny country undergoing a dramatic change in a very short period of time." He continued, "The Principality can not live with its back to the world. "We are in the process of developing our first constitution and we are legislating at a very fast pace and on very important matters."

As demanded by its own constitution, and as a response to the new European environment, Andorra has already taken a tough legislative stance against money laundering and tobacco smuggling. Immigration and property registration laws are already on the drawing board. The future design of Andorra's fiscal regime, and how to accommodate EU demands, is also high on the Council's agenda. Forne stressed that his government's goal is to maintain a low rate of taxation while responding to the country's development needs. "We are willing to adapt and modernize our tax system if necessary, making it more open and transparent, but preserving indirect taxation and endeavoring to cover the requirements of the national budget."

Striving for European responsibilities
Although positioned between of Europe's strongest powers, Andorra was not previously a force in European politics. The most fundamental advantage of its new constitution has been a new freedom to direct its own foreign policy and become an active member in international bodies. "Andorra has to accommodate new international standards, regulate some of its activities and search for economic alternatives that will help to consolidate its growing economy," Forne said.

Forne explained the government's strategy is to prepare Andorra for the challenge of globalization by playing a more active role both within Europe and outside it. Although at the geographic heart of the European Union, the country is not an EU member. The Principality belongs to the EU Customs Union and is treated as an EU member for trade in manufactured goods and a non-EU member for agricultural products.

The government believes in the importance of four fundamental freedoms: free circulation of people, goods, services and capital. Forne explained that Europe's micro-states need special agreements when becoming part of the larger political map. Andorra's difference is its strength; it could not survive, he believes, without recognition that it is different from other nations. Granted such status, he said, the country could join Luxembourg, Switzerland, Norway or Iceland, leading Europe in prosperity. "Any agreement should safeguard Andorra's financial and commercial interests, given its unique characteristics," he said.

While Andorra's political movement into the twenty-first century is the country's biggest challenge, its ability to change is its most important currency. "Our society has always been very dynamic," Forne said. "It has always showed its capacity to adapt and anticipate. Now Andorrans must assume the responsibility of deciding what kind of country they want for the future."

Adapting tradition to modernity
Andorra was for a long time a mountain backwater inhabited by farmers, shepherds, muleteers and blacksmiths. But all that has changed. "The people's mountain character has been kept alive, but today the country has one of the highest standards of living in the world," Forne said.

The transition came in the early 1960's, when the political situation in neighboring Spain -together with the attraction of the Principality's status as a tax-free port, its unconventional commercial practices and low taxation - prompted an unprecedented flow of immigrants. Just under a third of the country's population of 65,000 is now native Andorran, with the rest 43.6 percent Spanish, 10.6 percent Portuguese and 6.7 percent French.

Ambassador Minoves-Triquell explained that the mix of nationalities does not trouble the Andorrans. "It is a country with an extraordinary social cohesion - after a large flow of immigration, over 85 nationalities coexist. It is a model of peaceful coexistence."

The huge flow of immigrants, combined with a high birth rate, means the population has multiplied six times in only 50 years. Today, about 21 percent of Andorra's inhabitants are under 20 years of age, making Andorra Europe's youngest society. Forne believes that youth is the best capital a country can have: Andorra can count on the experience it has gained from years of growth, but the drive and innovation of a young base. "We have a young society, willing to learn and work for its country with absolute passion," he said. "This is a country with a very old history, but a very young spirit."

The 1960's also saw a boom in the development of tourism and commerce, thanks to the natural attractions of the Pyrenees, the improvement of communications and a rapid increase in the volume of imports due to the exploitation of the country's exceptional tax system. The economy grew exponentially. The leap in tourism resulted in the growth of the hotel, commercial and property sectors and the development of light industry.

Growing beyond tourism
Today, tourism is the mainstay of Andorra's tiny, well-to-do economy, accounting for roughly 80% of GDP -an estimated 10 million tourists visit annually, attracted by the country's duty-free status and by its summer and winter resorts.

Nevertheless, the economic fundamentals that have supported Andorran prosperity in the last few decades now need complementing with new spheres of activity in order to sustain and guarantee the country's future prosperity. Andorra's comparative advantage has recently eroded as the economies of neighboring France and Spain have opened up, providing broader availability of goods and lower tariffs.

Forne believes commerce and tourism, which in Andorra are closely linked, will continue to be the principal source of wealth, but he stressed the need to diversify the country's economy if it is to compete successfully in a new, changing global market. "The public and private sectors are aware we must concentrate our efforts to build new economic activities -and perfect ones we already have. They have been the motor of Andorra's progress, and will continue to be an essential part of the whole economy."

The government's plan contemplates the creation of new specialized branches in the services and industry sectors, especially in the areas of research and development, telecommunications, pharmaceuticals and new technologies. "I truly believe that Andorra can greatly benefit from the opportunities brought by the information age," Forne said.

Andorran lawmakers are backing the promotion of international trade in specialized areas, where there is, as yet, no local competition. The laws already under discussion increase the amount of foreign capital allowed into Andorran companies. While formerly no more than 33 percent of the capital on an Andorran company could be held by foreign enterprises, that is now true only of strategic sectors where there are sufficient national companies. In areas such as health and education, along with non-polluting industries that do not require much space or research laboratories, up to 100 percent of the company's capital may belong to overseas interests. The decision arose from the need to develop sectors of interest, public or social utility, and is a symbol of Andorra's changing needs.

"We are advancing greatly, towards a politic, economic and social model that is European and modern, which has the potential to influence the reality of Europe's social map in the 21st century," Forne said. "The climate in Europe is extremely favorable to Andorra. The political and economic changes taking place in neighboring countries oblige us to ask ourselves questions and think about the near future. This is a very exciting time."

Table of Contents

(1) A young country with an ancient history

(2) Finding Andorra's place in the world

(3) Andorran-US Relations: common hopes, common ties

(4) Andorra At A Glance

(5) Useful Contacts

(6) A pillar of prosperity and security

(7) Shaping a fiscal paradise to fit the times

(8) Voices of Andorra's Future

(9) The pleasure of shopping

(10) Giving Andorra power to develop

(11) Speeding towards the future

(12) A country of contrasts