ANDORRA, SOCIAL ASPECTS OF ANDORRA

Andorra

The landlocked Principality of Andorra is one of the smallest states in Europe, nestled high in the Pyrenees Mountains between the French and Spanish borders. For 715 years, from 1278 to 1993, Andorrans lived under a unique co-principality, ruled by French and Spanish leaders (from 1607 onward, the French chief of state and the Spanish bishop of Seu d'Urgell). In 1993, this feudal system was modified, with the titular heads of state retained, but the government transformed into a parliamentary democracy. In the late 20th century, Andorra became a popular tourist destination. An estimated 10 million people visit each year drawn by the winter sports, summer climate, and duty free goods. Andorra has also become a wealthy international commercial center because of its banking facilities, low taxes, and lack of customs duties. However, recent economic hardships have required Andorra to start taxing foreign investments and to implement stricter economic policies. Andorra is not a member of the European Union, but enjoys a special relationship with it and uses the Euro as its national currency.

Economy

Tourism, retail sales, and finance are the mainstays of Andorra's tiny, well-to-do economy, accounting for more than three-quarters of GDP. Andorra's duty-free status for some products and its summer and winter resorts attract millions of visitors annually, although the economic downturn in neighboring countries has curtailed tourism activity. The banking sector also contributes substantially to the economy. Andorra's comparative advantage as a tax haven eroded when the borders of neighboring France and Spain opened; its bank secrecy laws have been relaxed under pressure from the EU and OECD. Agricultural production is limited - only 2% of the land is arable - and most food has to be imported, making the economy vulnerable to changes in fuel and food prices. The principal livestock activity is sheep raising. Manufacturing output and exports consist mainly of perfumes and cosmetic products, products of the printing industry, electrical machinery and equipment, clothing, tobacco products, and furniture. Andorra is a member of the EU Customs Union and is treated as an EU member for trade in manufactured goods (no tariffs) and as a non-EU member for agricultural products. Andorra uses the euro and is effectively subject to the monetary policy of the European Central Bank. Slower growth in Spain and France has dimmed Andorra's economic prospects. Since 2010, a drop in tourism contributed to a contraction in GDP and a sharp deterioration of public finances, prompting the government to begin implementing several austerity measures to reduce the budget deficit, including levying a special corporate tax. To bring in new revenue and diversify future sources of economic growth, the government approved in July 2012 a new foreign investment law opening investment to foreign capital.

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