The EU Market Has No Alternative
22 December, 2011
The EU Market Has No Alternative

The EU market has no alternative for Georgia and government has to meet the EU recommendations to sign Deep and Comprehensive Free Trade Area (DCFTA) as soon as possible.

Talks on DCFTA between Georgia and EU started on December 12, 2011 but nobody can say at the moment how long the negotiations will last and when DCFTA between Georgia and EU will enter into the force. Sector pundits think success of negotiations depends on political will of Georgian government to fulfill

the obligations and meet necessary standards and requirements.

According to Nodar Khaduri, an economic analyst with the Caucasian Institute for Economic and Social Research (CIESR), the EU market has no alternative to Georgia especially now when Russia, the biggest traditional market to Georgia, is closed for about 5 years and prospects of its open up seem quite dim in spite of the fact that in mid-December Russia has enrolled the World Trade Organization (WTO) that prohibits trade embargo between its member-states. It creates a chance to Georgia, already the WTO member, to reappear at Russian market again but the issue is entangled with political problems that cannot be cut by one stroke like a Gordian knot.

Besides, Georgian business does not trust Russian market as much as before and prefers to think of other alternative markets and the EU lures most of all.

Based on statistic data of January 1st, 2011 the International Monetary Fund, World Bank and Eurostat, the EU population exceeds 502 million, GDP for 2010 makes USD 16. 3 trillion [USD 32 500 per capita], household consumption accounts for EUR 7. 2 trillion in 2008, savings and investments make 11.3% and 18.4% of GDP respectively. GDP of the US meantime totals USD 14.7 trillion, China – USD 5.9 trillion, India and Russia  USD1. 5-1.5 trillion apiece, and Georgia – USD 11.3 billion.

“Even a glimpse on this macro-economic data makes clear how vitally important the DCFTA with the EU is to Georgia,” Khaduri said during the presentation event of the Eastern Partnership and Georgian Social-Economic Policy published the CIESR on December 5,2011. Today Georgia enjoys preferential GSP+ trade regime with the EU removing customs tariff barriers to more than 2 thousand product but tariff-preferences did not have any breakthrough impact on Georgian export geography.

It is non-tariff barriers including customs procedures, standards and control mechanisms that make key hurdles to Georgian export to expand at the EU market. Nonetheless the EU makes one-third of Georgian foreign economic relationship: Georgia exports about 20-25% of its entire export to the EU and imports 30% of its entire import from the EU.

Removal of non-tariff barriers falls under focus of DCFTA however many obligations Georgian government assumed in frames of the free trade agreement talks still remain as mere declarations that hampers the negotiations process, Khaduri assumes. Frequent changes to law also do a harm.

For example starting 2004 there were plenty of changes to tax and customs law and amendments sometimes quite “revolutionary” ones are made almost weekly. One of the breaking changes was integration tax and customs law in 2010 that reduced customs related regulations in the code and pushed them in secondary legislation that complicates things to business, businessmen cannot find due paragraphs easily and neither observe all changes that occur permanently.

One of the important conditions to use the EU preferences is “certificate of origination” that is issued by three different structures at the moment: economic and finance ministries, as well as Chamber of Trade and Commerce of Georgia. The exception is certificate of originations for wines and grape-products that are issued by agriculture ministry.

Meantime the EU recommendation requires that only one body, customs, was responsible for issuance of origins certificates as far as customs has more effective tools to control this procedure and has an access to data base of tax service. Experts recommend to gradually move the certifying process within the customs responsibility completely in compliance with the EU recommendation.

“Removal of non-tariff barriers is possible only after institutional changes and through adoption of European economic regulatory institutions in Georgian economy. To this end government has to clearly outline not only strategies that are a step forward within itself but it also should address to implementation of these strategies and first of all in the field of institutional reforms… It is also important that the law should not change   frequently,” Khaduri said.

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