This is a good moment for Georgia to diversify its export markets and improve productivity,” said Antonio Lo Parco, Trade Affairs Attaché at the EU Delegation to Georgia. “There are very good conditions created by the Association Agreement (AA) to do that. In this direction the best thing that the Georgian government can do is to create the conditions for producers to put in place innovative business ideas. The government should first be committed to establishing perfect conditions in the market, which means implementing the Deep and Comprehensive Free Trade Area (DCFTA) part of the AA and ensuring fair market competition. All the producers should really have the same conditions. Everyone should have the same rights and the same possibilities. Once all the conditions are in place, new ideas and new partnerships could start in Georgia,” he added.
In order to help Georgia implement the DCFTA regulations, the European Union continues to provide further financial assistance, which Georgia will receive from 2015 onwards. This financial assistance is allocated for supporting two programmes in Georgia. The first of these focuses on the DCFTA and small and medium enterprises (SMEs). Support for SMEs is one of the most important goals to be achieved in order to improve the local economy. The second one is a specific programme, exceptional in nature and carried out on a case-by-case basis, to help countries dealing with balance-of-payments difficulties. Its aim is to restore a sustainable external financial situation while encouraging structural reforms.
“There are a couple of financial initiatives by the EU. One is a large programme worth EUR 46 million, of which EUR 26 million will be given to the Ministry of Finance for the direct support of the budget. We know what the needs of Georgia are and we know how this money can be spent in a better way. The other part will be given as technical assistance in various forms. But the main idea of this financial assistance is to help Georgia to implement the DCFTA regulations. The other programme is “Macro-Financing” assistance worth EUR 46 million that will be distributed evenly between grants and loans and will be disbursed in two equal tranches in 2015,” said Lo Parco.
You said that the European Union knows what Georgia’s needs are and that it allocates financial assistance to meet these precise needs. Could you please tell us what you believe Georgia’s needs currently are?
– Most of Georgia’s needs are currently linked to the AA and DCFTA, and I would like to mention food safety issues. When we say that Georgia wants to export agricultural products to the EU, we should understand that such products should meet EU standards.
The other need is linked to the so called TBTs, which are Technical Barriers to Trade for industrial products. Removing these barriers requires the adoption of specific industrial standards and technical regulations. This is quite a challenging part of the implementation of DCFTA regulations. The implementation period will take from three up to eight years and we understand that during this period Georgia will need financial assistance as well, because producers will need to adapt their equipment and acquire technical knowledge in accordance with the new regulations.
Usually, barriers are created by tariffs, but thanks to international trade negotiations tariffs are decreasing year by year. This simplifies trade, but what is increasing on the other hand are standards. People want their goods to be safer or healthier, which is a very important and relevant need for any country. What is very important for Georgia is that producing in accordance with EU standards means that all the markets are open to Georgia—not only Europe, but all countries, as EU standards are leading internationally.
How might Georgia’s main trade partners change after the DCFTA?
– Georgia and the EU have reached a strategic moment in time which enables promoting both the Association Agreement and the country. Georgia should be promoted in every direction—it could be maybe its traditions, or products, or the new opportunities which the AA brings. I have stopped bringing traditional Georgian souvenirs to my country (Italy) and have started to bring local food, such as churchkhela, nuts, dry fruits or wine instead, that were very much appreciated. Georgia should be promoted at various levels and then its products will be sold successfully on the EU market. Even the tourism potential should be better known abroad. The number of tourists to Georgia has been increasing year after year, and this is also due to the new relations established with the EU. Georgia has strong and historic connections with many EU countries.
So, if the country is promoted and if it adopts all the regulations outlined in its agreement with the EU, then every one of the 28 EU member countries could become a trade partner, further increasing the total value of Georgian exports to the EU. In terms of trade figures, it is obvious that for the EU, Georgia is an export market of limited size. But this is also a good side of the story, in the sense that hopefully what will increase is Georgian exports to the EU. Once the same rules apply, EU interest in Georgia as a trade (and investment) partner will increase.
What benefits will the DCFTA bring, and who will benefit?
– First of all, all the improvements that EU regulations will bring to Georgia will also be relevant for the Georgian citizens themselves. If the quality of products or of different brands is better and higher, it will be beneficial for the Georgian people. Consumers are the main subjects of the Association Agreement. Business may be affected by the DCFTA but there are fewer business operators compared to consumers. Consumers are all the citizens who will benefit from lower market prices, and from a wider choice of products. So maybe today some businesses are complaining about the transition period linked to the implementation of DCFTA regulations, but we should remember that the result will be very beneficial in the end, and that not only businesses but society as a whole will benefit. Of course it will take time, nothing will be improved in a short period of time, and this is also why the transition periods must be in place. For this reason, the EU also offers substantial technical assistance.
The trade reforms are also based upon the development and improvement of a business culture, which is a process closely linked to Georgian society. The need to protect intellectual property rights, for example, seems to be just related to producers, but in reality it is something more related to society and consumers. When we accept to buy a fake product, it means that we undermine legitimate business and that we allow some to profit from theft. A large part of the economy is based upon the protection of intellectual property rights. We should all understand that it is vital to have the same regulations in Georgia as well, and that intellectual property rights must be protected.
A further principle upon which the DCFTA part of Georgia’s Association Agreement is based in the trade sector are so called rules of origin. These mean that every product which has been produced in Georgia can enter the EU market duty free and vice-versa. To increase the country’s exports, Georgians should invest in industrial production, but it could also be interesting for European companies to establish branches in Georgia and begin strategic partnerships.
Georgia is in a very favorable situation. On the one hand, it has its Association Agreement with the EU, and on the other it has a Free Trade Agreement with Turkey. Turkey is Georgia’s main trade partner in the region, the second after the EU on a global scale, and Turkey has a customs union with the EU. This seems to be a very good triangle. Georgia may import components from Turkey, produce here and export to the EU duty-free. And not only Georgia can do this, but also companies from other countries which will decide to establish themselves here. All investors can find opportunities in Georgia to produce their goods here and export them to the EU duty free. So Georgia can benefit not only from the things it produces, but also from allowing other companies to produce in Georgia.
May Georgia’s trade relations with the EU hamper trade with Russia?
– Not at all, and Russia has no reason to be worried. If Russia decides to reduce its trade relations with Georgia, this would be a purely political—as opposed to commercial—decision. I think that what we are doing today is avoiding future risks. The Russian market was, until the politically motivated ban on wines and Borjomi waters of 2006, traditionally a very important market for Georgia, and especially for the export of agricultural products, wine, juices, second-hand cars and water. The trend is positive. Exports to Russia are increasing. We hope that this trend will continue in future despite the very sensitive relationship between Russia and Georgia. This is the beauty of the AA/DCFTA: no restrictions to having relations, including trade relations, with other countries. Improving standards is something very useful even for Russian-Georgian trade relations. If the quality of Georgian products improves, they will be more in demand on the Russian market as well.
The problem is the uncertainty of the Russian market. What Georgia needs is to have trade relations with stable markets. Unfortunately, there is always the possibility that Russia will again block imports from Georgia. But this is not new; it has already happened before. Georgia should not worry about this, because as I already mentioned the EU has 28 member countries and Georgia may have trade relations with any of them or indeed with any country around the world. Georgia could find other countries which might be interested in Georgian products, for example wine.
There is no magic recipe for Georgia or for any country. You cannot copy and paste others’ experiences. You need to create your own. I am sure that in the coming years Georgia will find very Georgian solutions to develop economic opportunities.