Challenges Beyond Euro-Enthusiasm:

EU-Georgia Deep and Comprehensive Free Trade Area

Nina JajanidzeUmbrella Topic: Transformation of Legislation

WINSEM ConferenceGyor, Hungary

27.02.2015

From Post-Communist Past to EU Negotiation Table:

"Technical Assistance to the Commonwealth of Independent States" (TACIS), 1992

Trade Regime of Generalized System of Preferences (eventually, GSP+), 1995

“Partnership and Cooperation Agreement” (PCA), 1996

World Trade Organization (WTO), 1997Eastern Partnership (EaP) Initiative, 2009

Association Agreement

Deep and Comprehensive Free Trade Area

Within the framework of Eastern Partnership, Association Agreement (AA) and its core Agreement on Deep and Comprehensive Free Trade Area (DCFTA) as well as Visa Facilitation and Readmission Agreements have been negotiated from 2012 till AA/DCFTA was signed on June 27, 2014.

Step Ahead

Political Implications

Fact: AA provides NOT A SINGLE provision which guarantees successful ascension.

Restatement of EU’s willingness to cooperate and a promise for future ascension.

Temporary measure to keep region quiet on international front and busy on internal one.

Association Agreement (AA) in a nutshell: Article 2. The aims of this association are: (a) to promote political association

and economic integration between the Parties based on common values and close links, including by increasing Georgia's participation in EU policies, programmes and agencies; (b) to provide a strengthened framework for enhanced political dialogue on all areas of mutual interest, allowing the development of close political relations between the Parties; (c) to contribute to the strengthening of democracy and to political, economic and institutional stability in Georgia; (d) to promote, preserve and strengthen peace and stability regionally and internationally, based on the principles of the Charter of the United Nations and the Helsinki Final Act of 1975 of the Conference on Security and Cooperation in Europe, including through joining efforts to eliminate sources of tension, enhance border security, and to promote cross-border cooperation and good neighbourly relations; (e) to promote cooperation aimed at peaceful conflict resolution; (f) to enhance cooperation in the area of freedom, security and justice with the aim of reinforcing the rule of law and the respect for human rights and fundamental freedoms; (g) to support the efforts of Georgia to develop its economic potential through international cooperation, including through the approximation of its legislation to that of the EU; (h) to achieve Georgia's gradual economic integration into the EU Internal Market, as stipulated in this Agreement, in particular through establishing a Deep and Comprehensive Free Trade Area which will provide for far-reaching market access on the basis of sustained and comprehensive regulatory approximation in compliance with the rights and obligations arising from its WTO membership; (i) to establish conditions for an increasingly close cooperation in other areas of mutual interest.

Diagnosis:

Competition

Intellectual Property

Food Safety

Customer Protection

Key Elements:Values and Principles:, respect for human rights and

fundamental freedoms as well as the rule of law, a market economy and sustainable development;

Enhanced cooperation in foreign and security policy, with the focus on regional issues, weapons of mass destruction (WMD), non-proliferation and disarmament, conflict prevention, and crisis management;

A DCFTA, which goes significantly further than classical forms of economic integration, offering not only improved trade and investment opportunities but also assistance in trade-related reforms with the aim to contribute to economic recovery and growth and to better integration of the Georgian economy with the world markets;

Justice, Freedom and Security, covering the rule of law and respect for human rights and fundamental freedoms, protection of personal data, cooperation on migration, the fight against money laundering and terrorism, illicit drugs, and the fight against organised crime and corruption;

Enhanced cooperation in some 28 key sector policy areas, including in the fields of: economic dialogue; management of public finances and financial control; taxation; statistics; transport; energy cooperation; environment; climate action; industrial and enterprise policy and mining; company law, accounting and auditing and corporate governance; financial services; cooperation in the field of information society; tourism; agriculture and rural development; fisheries and maritime governance; cooperation in research, technological development and demonstration; consumer policy; employment, social policy and equal opportunities; public health; education, training and youth; cooperation in the cultural field; cooperation in the audiovisual and media fields; cooperation in the field of sport and physical activity; civil society cooperation; regional development, cross-border and regional level cooperation; civil protection based on gradual approximation with the EU acquis and also – where relevant – with international norms and standards.

Benefits of Association Agreement for the Civil Society:

Better protection of consumers through the higher quality AND improved safety of locally-grown agricultural products;

Better business opportunities for small- and medium-sized enterprises through the opening of markets;

Better access to improved health services; Energy savings thanks to more efficient use of energy

resources;Development of renewable energy sources; Better functioning judiciary;Strengthened Rule of Law; Accountability rules for public decision-makers and

increased transparency;

Trick or Treat? Myth 1: "Signing the Association Agreement poses a threat to Georgian culture and

traditional values." Myth 2: "The Association Agreement will force Georgia to legalize gay marriage." Myth 3: "The EU forces Georgia to introduce anti-discrimination legislation which

will pave the way for gay marriage." Myth 4: "The Association Agreement will further enflame Russia-Georgia

relations and could lead to further tensions in the breakaway regions." Myth 5: "The Association Agreement could cause the isolation of national minorities

in Georgia – including those of Armenian and Azeri origin – and possibly lead to secession attempts."

Myth 6: "The Agreement challenges the authority of the Georgian Orthodox Church.“

Myth 7: "The Agreement brings little benefit to Georgia and just imposes extra demands."

Myth 8: "The signature of the Agreement will harm the Georgian economy." Myth 9: "The EU is engaged in a geopolitical competition with the Russian

Federation." Myth 10: "The AA/DCFTA ties Georgia’s hands and limits its sovereignty." Myth 11: "Georgia has several FTAs in force with CIS members which the EU

considers incompatible with DCFTA.“ Myth 12: "Georgia-Russia trade relations are likely to worsen as a result of DCFTA." Myth 13: "If the Association Agreement is signed, Georgia's traditional exports to

Russia will be disrupted because of the adoption of European standards."

Myth 14: "The EU will gain more than Georgia from the removal of customs duties." Myth 15: "The economic benefits of DCFTA for Georgia are negligible, while the costs of reform

will be significant." Myth 16: "Only the EU will benefit from the DCFTA. Georgia stands only to lose jobs,

companies and talented people who will go work in Europe." … Myth 18: "Georgian farmers will lose out because of reforms”. Myth 19: "Reforms will destroy the sectors that manage to get by in Georgia." Myth 20: "European imported food will ruin Georgian agriculture producers." Myth 21: "Food is going to be more expensive as a result of the DCFTA." Myth 22: "Many small farmers will go out of business as a result of forced increase of food

safety standards." Myth 23: "Under DCFTA, the size and looks of tomatoes will be regulated and hens will have to

be raised in special cages." Myth 24: "The EU will continue to protect its market for most sensitive agricultural products,

while Georgia opens up fully." Myth 25: "Georgian manufacturers will lose out because of reforms.“ Myth 26: "Imports from the EU will drive Georgian companies out of business.“ Myth 27: "Georgia decided to open up fully to the European imports and cannot protect itself

from influx of European goods." Myth 28: "Only businesses will benefit from the DCFTA, not the Georgian people." Myth 29: "Georgia has to engage in ambitious reforms like the EU’s new Member States but it

does not have the membership perspective. Myth 30: "Georgia has to implement all the reforms in less time than EU Member States.“ … Myth 40: "DCFTA with the EU is not better for Georgia than participation in the Customs

Union."

Myth 17: "This is not a good time to start the reforms. Georgia’s economic growth has slowed down, we cannot afford it now. Business will go bankrupt as they are already facing crisis."

FACT: It is true that Georgia experienced a slow-down in economic growth in 2012. This slow-down was certainly felt by businesses. But the World Bank forecasts suggest that this was a temporary slump and that growth is coming back to Georgia for the coming years, expected at 6.3% of GDP in 2014 and 2015, and 6.5% in 2016. This growth is linked to recovery in Europe and the United States. As it materialises in the coming years, the reforms will gradually progress as well. Georgian businesses do not have to fear sudden negative consequences in this regard. In addition, the reforms will strengthen democracy and political, economic and institutional stability in Georgia, making it a more predictable and attractive destination for investment.

Deep and Comprehensive FTA The Deep and Comprehensive Free Trade Area (DCFTA) is an

arrangement between the EU and Georgia that foresees a preferential trade relationship, based on mutually advantageous treatment, giving to each other better access to their markets than that offered to other trade partners.

Comprehensive – goes

beyond “trade only”

discipline.

Deep – reforming trade and

trade related

policy in line and on the

basis with EU aquis.

Deep Component

s

Comprehensive Aspect

“Trade

Only”

rules

DCFTA – Peculiarities:

“Trade only” Rules

Tariff Duties

Rules of OriginServices and Establishment

DCFTA – Peculiarities:

The “Comprehensive”

Aspect

Intellectual Property

Competition Policy

Sustainable Development

DCFTA – Peculiarities:

Food Safety

Technical Regulation

s

PublicProcureme

ntServices

Customs Facilitatio

n

Deep Component

Anticipated Benefits- Boosting trade between the EU and Georgia: by 12% as regards Georgia’s exports to the EU, and by 7.5% on imports from the EU. - The prices are expected to be lowered for domestically available goods, resulting increased real purchasing power of consumers. - Stronger domestic rules will improve the safety of consumer products and therefore of consumers in general. - The DCFTA, by providing more stable and predictable trade regime, based on EU legislation, is expected to boost the inflow of EU FDI to the country, creating more enterprises and strengthening the competitiveness of the economy and individual sectors. - The DCFTA as a whole is expected to improve the current account balance of Georgia and boost the GDP by 4.3% ( 292 million EUR in national income), provided that the reforms are completed.

Challenges Beyond Euro-Enthusiasm:

A. The Government of Georgia might sacrifice business interests to accelerate the implementation of the DCFTA due to political reasons. B. DCFTA implementation may result in a quick and ‘careless’ legislative approximation process, whereby the domestic political agenda could be justified by the often non-existing obligations resulting from the DCFTA.C. Agricultural sector and the associated obligations, is one of the most sensitive areas when it comes to analyzing the preparedness of Georgia’s private sectorD. MisconceptionE. Georgia has 95% of GSP+ opportunities out of which it uses only two or three. Roadmap should be more detailed. F. Import ratings are static due to Low Quality Products and non-efficiently functioning manufacturing chain.G. 70% of the lands are not registred and its utopian to attract investment or capital. H. Cooperatives, farmer unions are not functioning in the region, Land fragmentation outcomes.I. EU GSP+ enables to export 7200 kinds of product. J. Technological investment is imminent.

Thank you for attention