Frank Dieter Müller: Catalonia as a business location – Economy, administration, legal and judicial system

I. Economy
1. Catalonia is one of 17 Autonomous Com­munities in Spain and, due to its partic­ular history and culture, is counted among the historic Autonomous Communities, the same as the Basque Country and the region of Galicia.
In order to do justice to the title of this book and outline Catalonia’s position within Spain, let me first give you some data, mainly on the economic development of Spain.
During the past two decades, Spain ex­­perienced a massive economic revival. This was stimulated by important events, such as the country’s transition to demo­­c­racy, its accession to the EC in 1986, and its participation in the Economic and Monetary Union. In 2007, the Spanish economy was in its fourteenth consecutive year of growth, with its growth rate continuing markedly above the European average. Following an increase of some 3.9 per cent in 2006, the gross domestic product (GDP) in the first quarter of 2007 again rose by about four per cent over the same period in the previous year.
A large number of internationally success­­ful companies emerged from this econom­­ic upswing, even though we have to take into account that the upswing was largely based on a high level of private consump­­tion. Therefor, the indebted­­ness of families is growing far more then their in­­come. The pro­­por­­tion of debt com­­mit­ments com­­pared to in­­­­come in­­creased from 70 per cent in 2000 to 127 per cent in 2007.

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While other Euro­­­pean countries, such as Ger­many, which was one of Spain’s most im­­por­­­­tant trading part­­ners after the German re­­­­unifi­­­­ca­­tion in 1990, re­­­­­port­­­­ed only sluggish growth and, due to infringe­­­ments, were un­­­­able to fulfil the re­­quire­­ments of the Sta­­bility and Growth Pact of Maas­­tricht for years, Spain’s bud­­get bal­­ance even show­­ed a surplus in the height of 1.1 per cent of GDP in 2005, and in 2007 still had a bal­­anced budget for the fifth time in a row.
This placed Spain in eighth position among the industrial nations already in 2006, with a gross domestic product of 967.9 billion euros, its per-capita GDP being 21,654 euros.
The number of unemployed people dropped by more than 50 per cent during the ten years before 2008, which was only slightly above the European average. Fol­­lowing the rapid reduction from 24.2 per cent in 1994 to 10.5 per cent in 2001 and a simultaneous rise in the number of employed persons subject to social in­­surance contribution (from 11.7 to 19.3 million), the unemploy­­ment rate ended up at some eight per cent – a consequen­­ce of the most success­­ful labour market policy in the EU.
“España va bien” (Spain is doing well, a phrase coined by the former Prime Minister Aznar) has become a common dictum.

Following the international opening of the markets, business contacts with other EU member states, particularly France and Germany, were strengthened.

However, the most important sectors of the economy have traditionally been the tourism and construction industries. The former reported almost 61 million visitors in 2007, making Spain the second most popular tourism destination worldwide, after France; the latter produced an annual average between 600,000 and 800,000 new units over the past few years, which is more than the combined output of Ger­­many, France and England, the number of Spain’s inhabitants being less than a quarter of the other countries’.

Critical voices have been raised for years about the apparent overproduction in the building sector, warning against the burst­­ing of the so-called “real estate bubble”, which also led to continuous price in­­creases. Yet not even politicians could resist the financial incentives offered by the building industry – the prospects of an ever-growing economy and full em­­ployment were just too tempting.

In the course of 2008, the upswing came to a sudden end due to the global crisis, and the real estate bubble finally burst. A number of large and renowned real es­­tate companies went bankrupt and about 55,000 of the approximately 80,000 real estate agencies closed. Since this meant the collapse of one of the two crucial pil­­lars of its economy, the crisis manifests itself more clearly in Spain than in other European countries. The readiness to invest has declined considerably among foreign companies. On the other hand, the building crisis led to a significant drop in prices already in the last few months of 2008, not only in the sector of residential property, but also with regard to commer­­cial buildings, such as shops, offices, ware­­houses, etcetera. This provides new op­­portunities for investors in 2009.
And there are similar opportunities in many other areas, such as the relatively new markets of alternative energies. In Spain, investors can rely on the excellent infrastructure that was built after the country’s accession to the EU and during the years of the building boom.

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2. Catalonia, which did not attract much public attention within the EU before its capital, Barcelona, became the venue of the Olympic Games, is actually Spain’s most important industrial centre, providing 25 per cent of the total Spanish in­­dustrial structure. Catalonia generates about 19 per cent of Spanish GDP and some 27 per cent of the total Spanish ex­­ports. This is true despite the fact that the 6.8 million citizens of Catalonia re­­present only some 16 per cent of the total Spanish population.
Over the past ten years, the GDP of Ca­­talonia increased by 3.5 per cent on average and is now more or less level with that of the Madrid region.

The standard of living in Catalonia is by far higher than in the whole of Spain. Al­­ready back in 2006, the Catalan GDP per capita of 21,219 euros was two per­­centage points above the average of the former EU and 14 percentage points above the Spanish GDP.
Particularly strong sectors of the economy are the metal-working, chemical and textile industries as well as the food industry, which experienced high growth rates in recent years. Catalonia exports a broad range of finished products: cars, chemical products, cement and others. Here too, special attention should be given to the tourism industry, which continues to grow, partly as a result of the post-Olympic effects.
The average per capita income in Cata­­lonia is among the highest in Spain. Only in Madrid, Ceuta and Melilla do people earn more money.
In 2007, the Catalan unemployment rate of about six per cent was markedly below the Spanish average.

Of the 17 autonomous regions, Catalonia has the closest foreign trade relations with the new EU member countries, and its foreign trade surplus is the highest of all Spanish regions.
Catalonia, with its dynamic capital city of Barcelona, is certainly one of the most attractive regions in Europe for foreign companies to set up branch offices.

The most important investors come from neighbouring France, Germany, the Neth­­erlands and Italy, but also from the North American countries of Canada and the US. Most of the money is invested in the services industry, accounting for 60 per cent, while one third goes to the industrial sector.
In 2007, Catalonia was still the European region with the second largest amount of investment projects, which meant a steady improvement over the previous years. It was outstripped only by the Greater London area.
More than 3,000 foreign companies are active in Catalonia. Approximately 34 per cent of foreign businesses active in Spain have their branches or main offices in Catalonia.
More than half of the Japanese, French, German, Italian, Dutch and American firms represented in Spain are based in Ca­­ta­­lonia, about 90 per cent of them in Barce­­lona. Of all French-owned businesses in Spain, 61.7 per cent are based in Cata­lonia (705 out of 1,142), 60.8 per cent of all German-owned businesses are based in Catalonia (853 in Spain, 519 of them in Catalonia), 60.1 per cent of all North Amer­­ican-owned businesses are based in Ca­­ta­­lonia (664 in Spain, 399 of them in Ca­­ta­­lonia). Approximately 80 per cent of those foreign branch offices have been in Cata­­lonia for more than ten years. Ap­­proxi­­mate­­ly 75 per cent of these companies estab­­lished new businesses, while about 25 per cent bought existing firms.
According to a survey carried out among investors, about 97 per cent of them are satisfied with their decision to locate in Catalonia.

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In recent years, Barcelona finished in sixth place in Healey & Baker’s European City Monitor as one of the most attractive European cities for locating a business – that is one place ahead of Madrid.

Barcelona competes with cities like Paris, London and Milan, and over the past few years, was leading in terms of direct in­­vestments from France, Germany, the US and other countries.
While the effects of the crisis in 2008 are clearly visible in the industrial sector, above all in the automotive and component manufacturing industry, and the bursting of the real estate bubble hit Catalonia as well as the whole of Spain, the tourism sector is less affected, which is mainly ascribed to an increase in na­­tional tourism. The post-Olympic effects are still lingering, and Barcelona is one of the most popular congress cities in Europe.
The Catalan government has made nu­­merous efforts for quite some time to counteract the impact of the crisis.

In late 2008, it managed, for instance, to convince the 43 foreign ministers of the member states of the Union for the Mediterranean to establish the headquar­­ters of the Union in Barcelona. The Union for the Mediterranean is a community of the EU members, the countries bordering the Mediterranean Sea and their neighbouring countries of Mauritania and Jor­dan. Its aim is to strengthen and improve the economic and political cooperation between Europe and the other countries around the Mediterranean.

II. Executive, legislature und judiciary
1. Executive
According to its currently valid Statute of Autonomy, dating from 2006, the Cat­­alan administration (Generalidad de Cat­­aluña) consists of the Parliament, the Government and the President. The Par­­liament’s task is to draw up and decide on laws as well as to control the political events and the Government. The Govern­ment comprises the President and the ministers (consellers), it has the right to initiate laws, it executes existing laws and leads the administration.
The Generalidad has its origin in the royal courts of Catalonia (Las Cortes Reales Catalanas) of the twelfth century, as­­sem­­blies that were particularly held to end acts of war and make arrangements and which, in turn, can be traced back to the comital courts of the tenth century.

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Under King Pedro II el Grande (1276–1285), the Cortes Reales Catalanas were institu­tionalized. They had advisory and legislative functions. In the beginning, however, the Cortes Reales had no executive organ to carry out their decisions. In 1289, the “Diputació del General” was established in the Cortes de Monzón (Aragon), initially planned as a temporary commission, to collect services and tribute for the king.

In the context of the invasion of Castile and the related armed conflicts under Pedro III el Ceremonioso (1336–1387), the crown of Catalonia and Aragon needed huge amounts of money. Twelve delegates (diputados), vested with executive power at a fiscal level, and auditors (oïdors de comptes) were appointed to procure the money, and they were to be controlled by the administration of the first president of the Generalidad, Berenguer de Cruïlles, the bishop of Girona.

This new “Diputació del General” has his­­torically been considered the origin of today’s Generalidad.

2. Legal system
After years of dictatorship, the kingdom of Spain returned to democracy in 1978, with separation of powers between ex­­ecutive, legislature and judiciary.

As all occidental legal codes, the pre­sent Spanish civil law system is based on Ro­­man law and its reactions to historical, cultural, economic and other local de­­vel­­opments. While in the beginning, the Ibe­­rian peoples continued to adhere to their own laws, Roman law was generally ap­­plied since the second century AD.
Even though the Visigoths started to in­­tro­­duce some Germanic influences in the fifth century AD, we must not forget that they, too, had already assimilated Roman law. The Lex Visigothorum, for instance, was partly valid in Spain until the 19th century. The centuries of Moorish oc­­cu­­pation and Canon Law also left their trac­­es in the law system. The currently valid civil law code goes back to a draft based on the French civil law code and other Eu­­ropean laws. This draft from 1851 adopt­­ed only some parts of Castilian law and aimed to replace foral laws. The law was actually passed in 1889 and remained in force with little changes until 1981. Following the end of the dic­­tatorship, sub­­stantial reforms were in­­troduced ac­­cord­ing to the Constitution of 1978, establish­­ing, for example, equal rights for women and men.
Notwithstanding all influences from out­­side and inside, territorial rights in Spain have traditionally prevailed over Roman and Canon Law as well as over the Cas­­til­­ian ambitions that eventually lead to the draft of the civil law code of 1851.

After the law codes of the Goths and Franks, which were first applicable in Catalonia, the twelfth-century compilation of customs and traditions (Usatges) is the first genuine Catalan text, containing laws, doctrines and jurisprudence. Fol­lowing the compilations (compilacions) of 1495 and 1585, and due to increasing legislation, a general Catalan law code was finally established in a corpus juris entitled Constitucions y altres Drets de Catalunya in the year 1704. The latest, currently valid compilations in Catalonia are based on the law passed on 2 July 1960 and some subsequent reforms. Pre­­s­ently, a new Catalan civil law code is be­­ing worked on, which is already in force in several areas of law.

Thus, according to the Spanish Consti­­tu­tion and the Statutes of Autonomy, Spanish civil law consists of general leg­­islation, which is applicable in the whole of Spain, and concurrent foral laws that apply in some of the 17 Auto­no­mous Communities.

In Catalan property law, for instance, the marital property regime of separation of property applies, whereas a community-of-gains regime is in place in most of Spain. Likewise, different rules exist in in­­heritance law, which was previously in­­cluded in codes like the 1960 compilations and the 1991 inheritance law and, from January 2009, has been laid down in the fourth volume of the Ca­­ta­lan civil law code, etcetera.

 

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3. Judicial system
The competencies and structure of Span­­ish jurisdiction are regulated in the Span­­ish Organic Law on Judicial Power – Ley Orgánica del Poder Judicial (LOPJ; 1985), as amended on 23 December 2003. It comprises civil jurisdiction, labour and social jurisdiction, criminal jurisdiction, administrative jurisdiction as well as constitutional jurisdiction.
Functional and territorial competencies are defined in the currently valid version of the Law of Civil Procedure (Ley de En­­juiciamiento Civil; 2000).

Ordinary jurisdiction includes the Courts of First Instance (Juzgados de Primera Instancia), smaller municipalities some­­times have so-called Courts of Peace (Juz­­gados de Paz) with limited factual com­­petence, then there are Provincial Appeal Courts (Audiencias Provinciales), High Courts of Justice in the Autonomous Communities (Tribunales Superiores de Justicia) and finally the Spanish Supreme Court (Tribunal Supremo).

The Provincial Appeal Courts in the pro­vincial capitals are the second instance, deciding on cases when an appeal is submitted against the sentence of the first instance.
The High Courts of Justice of the Auton­­omous Communities decide on legal remedies against previous decisions of lower courts and authorities. Various ad­­ministrative and jurisdictional competencies, such as cassation and appeal in civil law, have been allocated to the 17 Autonomous Communities. In addition, they have jurisdiction in some matters that fall rightfully under the jurisdiction of the Spanish Supreme Court if local standards of foral law are relevant to the outcome of a case.
The Spanish Supreme Court is the high­­est court of justice for all areas of law ex­­cept for constitutional issues. It is the last instance in cases of cassation, appeal and special legal remedies, which, for in­­stance, promote “uniformity of law” or are applicable in case of “violation of procedural law” by a lower court.

The High Court of Justice of the Auto­no­­mous Communities of Catalonia, based in Bar­­celona, is responsible for the organization of the judicial system and, particularly for the purpose of ensuring uniform jurisdiction, for de­­ci­si­ons on standards of the Catalan foral law.

In Spain, there are 83 autonomous cham­bers of lawyers (Ilustres Colegios de Abo­­gados), whose umbrella organization is the General Council of Spanish Lawyers (Consejo General de la Abo­gacía Española). Membership in a chamber of lawyers is required to exercise the profession, how­­ever, each member of one of the 83 cham­­bers may appear in any of the Spanish courts.

A total number of approximately 118,000 lawyers are currently admitted to the bar in Spain, about 19,000 of them in Catalonia.

FotoFMüllerThe author, born in 1960, is a lawyer admitted to the bar of Barcelona and Frankfurt am Main, who represents va­­rious companies in Germany and Spain. In addition, he specializes in commercial, corporate and tax law. Frank Müller is a partner in the following firms: AD&M Abogados (law firm), MDV Aso­­cia­­dos (tax consultants) and V & M Auditores (chartered accountants).