Expert conclusion of Global Research Center On some of the aspects of Association Agreement of Georgia with EU

Posted by globalresearcheng on Jun 26th, 2014 and filed under Our researches, Research. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.

From March to May, 2014 Global Research Center held a number of expert meetings and conferences. Expert conclusion was prepared by the Center back in May. However, we did not think it appropriate to publicize it before the local-self government elections with the intention to avoid speculations on it. Now, when couple of days is left before signing the Association Agreement, a question may arise – what will the expert conclusion change? Our objective is to direct the attention of the Government of Georgia towards several problematic issues, as signing the Agreement is the start, not the finish, of the process.

The first and most important problematic issue is that the new government, similar to the old one, politicizes the issue of Association Agreement too much and sows excessive expectations in population. Informatinal policy of the Government, which results in illusions as if Georgia will have visa-free access to EU countries and after some time we will be accepted to EU is beyond criticism. These illusions may become the source of great disappointments.

None of the high level conference or team of experts can completelyreview, assess and calculate the results of all the aspects of this thousand page document. Before signing the document review of separate aspects, short and long-termrisks, and threats by governmental agencies and scientific-research institutions (by the ones that still exist), then harmonization of approaches and opinions by the most important institutions (government, Academy of science, Trade Unions, Parliament)would have been better. Unfortunately the developments did not take the above course.

The Association Agreement is the most extensive, comprehensive and complex document that has ever been prepared on cooperation of Georgia with international organizations and institutions. It imposes certain institional frames, rules of conduct to not only the representatives of almost every branch of the Government of Georgia, but ordinary members of the Georgian public, entrepreneurs, businessmen, and public servants as well…. This is not a declaration of commitments taken only by the Government of Georgia. This is a document defining certain model of conduct for Georgian society. Another issue is how much the public itself realizes these imposes and how much it is ready to accept them.

After the Agreement enters into force, the governmental programs, documents and declarations which have been adopted during recent years by either former or acting governments of the country (at least five such documents were prepared, including three by the acting government of the country: 1. Pre-election program of “Georgian Dream” (2011); 2.Action-plan of the Government of Georgia (2012); 3. Draft of socio-economic development strategy of the country – “Georgia 2012” (February, 2014) require serious revision as the significant number of provisions of these documents are not in compliance with the spirit of the Agreement.

Unfortunately, as it has become known, works on separate aspects of the Agreement by the bodies of executive government in accordance with their competences have not been carried out. Only consultations in governmental institutions with the experts of relevant EU institutions and organizations – who were directly involved in preparation of the document from the EU side were held. In other words, Georgian side did not take material part in the preparation process of the Agreement. The document was presented “ready-made” by the EU first for initialing and now for signing. To compare: the unrest which started in the Ukraine in November, 2013 was the result of getting familiarized and realization of similar document.

The fact that Russia did not cause any problems before signing the Agreement should be considered as a success of Georgian diplomacy (under the conditions of absence of diplomatic relations – the success should be attributed personally to Mr. Zurab Abashidze); however, there are no guarantees (or we are not aware of them) that Russia will not put embargo to its market which it had partially opened for Georgia. In October, 2012 modelling of economic effects resulted from the Agreement was carried out according to the ordered of the EU Commission. 1,7% growth for short-term and 4,3% growth forlong-term of GDP and 9% growth for short-term and 12% growth for long-term of export is predicted according to the research.

To compare: only in January and February of 2014 compared to the same period of the previous year export increased by 23% which was mostly a result of opening of Russian market.

The list of products given in Annex II – B grabs attention. These are the products which are exempt from customs duty though are taxed by a so-called “market-access price” while exported.

The tax aims at equalling the price of Georgian products with the European ones as Georgian product is cheaper than European. To put it in simple words, apple from Gori, Georgia should not be cheaper than apple from Spain.

The list includes technically all fruits and some of the vegetables grown in Georgia. In particular, the list covers: tomato and cucumber, almost all types of citruses grown in Georgia, grapes, apple, pear, peach, apricot, cherry, sweet cherry, plum, etc. which create profile of our agriculture.

We often hear from the representatives of the government that signing the Agreement opens doors of more than 500 million markets of Europe for Georgia. However, we should consider how much the country is ready for this and how much Europe supports us in entering their markets. Gaining foothold on new economic spaces and not only realization of its product on these markets, but formation of legislative, investment and business climate as well, is important for the EU.

Nowadays, EU is one of the important, though not the most important trade partners for Georgia. As of 2013, EU is responsible for 26.7% of foreign trade turnover of Georgia. In addition, import exceeded export three times. To compare: CIS is responsible for31.5% of foreign trade turnover of Georgia. Covering export with import with EU is around 1.5% lower than with the rest of the world. Altogether covering export with import on average is 36.9%, with EU – 26.8% with the rest of the world except for the EU – 41.1%.

Currently Georgia is responsible only for 0.6% of foreign trade turnover of EU. However, EU is cautious about ending up uncontrolled export on the markets of EU from Georgia. These measures of precaution are related to commercial interests of protecting domestic market of EU, as well as to prevent ending up products from a third country via Georgia or from a country with whom EU and International Community has economic sanctions on the territory of EU.

Thus, hoping that Georgian product will conquer European markets is exaggerated. Except for the mechanisms of protecting own markets, our current potential to gain foothold on EU market is too weak considering the fact that agriculture is the weakest part of Georgian economy. Labour capacity in this field in Georgia 60 times and more legs behing the same European indicator.

The third fact is thatdomestic consumer market of Georgia is almost 4/5 occupied by the imported goods and the number one task is not exporting but “Reconquista” of domestic consumer market – promotion of domination of local products on domestic agricultural market. For example: the Agreement allows 4.4 thousand tones of cattle meat and 0.5 thousand tones of poultry meat on EU market. However, the share of local meat in the consumption by Georgian consumers is 36% and more than 60 thousan tone of meat is exported annually.

Taxes (customs duties) on imported goods is low in Georgia and the amount of money mobilized in the budget of Georgia through such taxes is GEL 90 mln annually – around 1.2% of current budget revenues. Consequently, after signing the Agreement with the EU, in consideration of foreign trade turnover volume and structure, decrease in budget receipts will be around GEL 25-30 mln. Its compensation will be possible through export increase which exceeded USD 400 mln in recent years and profit tax received from this significantly exceeds the possible decrease in the budget from the reduction of customs duties on the goods imported in Europe.

The data on stimulation of economic increase and economic development in the country given in the Agreement require verification. For example, the authors of the document predict increase of GDP by 1.7% in the short-term prospective and by 43% in the long-term prospective after concluding the Agreement. Th authors predict increase in export by 9% and 12% and import – by 4.4.% and 7.5% respectively.

However, the research does not say anything about the synergy factor, which may be caused by the increase of possibilities and demands. During the last 8 years (years 2006 – 2013) export in Georgia  has been increasing annually by 16.5% on average while export increased by 15.7%. It seems that the rate of export will decreas after the Agreement and import will remain the same.

Based on our assessment, increase of product quailty (and, consequently bringing them closer to world standards) will result not only in the increase of GDP, but also in actual increase of export in EU by 1.5 – 2 times on average, thus by USD 300-600 mln, which will be equivalent of around 2% increase in the country.

In addition, we consider the hopes on exporting Georgian products to EU “immediately” and in huge amounts exaggerated. Currently the EU market is structured, full of products and quite protected for the new actors to manage access, win foothold and gain significant segment of it. It somehow resembles to the expectation that the previous government of Georgia had towards the Chinese market in terms of exporting Georgian wine while actually the 1.5 billion consumer market of China bought only 10% of that Georgian wine in 2006-2012 which the 143 million consumer market of Russia bought only during 4 months of 2006.

For this reason, 500 mln consumer market is generally interesting and attractive for Georgian economy, though gaining foothold on it implies playing with the same rules, meeting quality and supply conditions, overcoming very high level of competition towards which the Georgian side still has much to do.

But if direct economic effect on European market will not be made by tangibel export of Georgian products, then what will be the benefits that the Agreement is supposed to yield generally for the economy of Georgia and specifically for Georgian customers?

One of the visibel results of the agreement will be facilitation of visa regime, as well as increase the quality of Georgian local agricultural products, ensuring more possibilities for small and medium enterprises, improving availability of european education and increase of energo-efficiency in the field of electric power and ensuring development of renewable energy resources and all these on the background of enhanced legal backdrop and rule of law, transparency of activities and responsibility of any institute, service and public servant.

At the same time, in the long-term the Agreement may be reviewed as a main motive not for securing foothold on European market and promoting export from Georgia, but for producing and establishing Georgian national product which meets the requirements of European standards on domestic market and for replacing imported goods with Georgian products.

A logic question arises – is not establishing all these standards a prerogative of the government of Georgia? What are the hindering factors to carry out this policy without EU Agreement?

The third section of the Agreement is dedicated to freedom, security, and justice. Article 15 of the Agreement refers to cooperation in the fields of emigration, refuge, and border management. All the three areas require regulation in Georgia; the EU is far more interested in decreasing the number and control of migrants from developing countries. In such situation interests of both parties concide and cooperation in this field will most probably be effective.

For decreasing the flow of migrants the EU will have to assist Georgia in a way which will result in the decrease of the number of people who would want to immigrate. Thus, Europe should try and make preventive measures on local level which means that it EU should make substantial contribution to Georgia’s economic and scientific development to prevent the people having labour and intellectual potential from wanting to go abroad. If the processes do not go this direction, illegal migration to Europe will take on such scales that readmission processes will not be effective.

Another problematic area for Georgia is flow of migrants into the country. Most part of migrants come from developing countries of Africa and Asia. For them Georgia is a so-called “transit” country for migration to Europe. Due to the fact that migration from Georgia is related to quite complicated procedures and is often hindered, significant part of migrants illegally stays in the country.

Because of the fact that the previous government of Georgia had approved visa-free regime with almost half of the world, part of foreigners who entered Georgia and who are going to emigrate to Europe, represent danger and Georgia, independently from itself, poses threat to Europe and promots movement of unconventional forces to Europe.

Within the frames of cooperation in this field visa regime may be reviewed and the welcoming fact is that making amendments to the rule of granting citizenship to foreigners is already being reviewed. Cooperation in this direction is a serious step forward in terms of enhancing security. Interest of Europe in this regard is high and taking preventive measures in Georgia which would cost it far cheaper and would be more effective would be more appropriate for Europe.

Another field in the above-mentioned article is border management. Since re-gaining independence Georgia has not carried out demarcation of borders with none of the neighboring countries. From the USSR we have inherited properly demarcated borders only with Turkey. The field is quite problematic for Georgia. Claims of Azerbaijan on Davit-Gareja monastery complex, uncertain situation in Samtskhe-Javakheti at Armenia-Georgia border and the most difficult situation – border issues with Russia – this is the current situation of Georgia in terms of borders.

Back in the years when Mr. Davit Tevzadze was the Minister of Defense, two battalions called “Monadire” (Hunter) were established in Svaneti and Khevsureti under the aegis of the Ministry. The battelions were composed of local population. These battalions were commited to carry out several tasks. During the process of completing the tasks it became clear that the results were far important thanexpected. First of all the sections of borders where these battelions operated were protected.

Attempts of crossing the border from the North Caucasus to both directions (Svaneti and Khevsureti) by Russian armed units as well as by unconventional forces were recorded several times. However, all these attempts were unsuccessful. Local population returned to border zone (their family members and local population, who had left their houses and moved to low-lands), started cattle-breeding and villages became lively again. Returning of families to such places resulted in the decreased number of attempts of crossing borders illegally and misappropriation of property. As they say, sacred place is never deserted. If you abandon a place others will come and occupy it.

Due to the fact that there are no demarcation lines between Georgia and Russia and the previous Government dismissed these battalions which resulted in deserting these places, Russia virtually took around 3-4% of the territories near Abkhazia and South Ossetia after the August war, in 2008. Neither the previous government nor the new one is protesting this fact. Consequently cooperation in this field is a good opportunity for minimizing the risk of losing territories.

Article 18 refers to fight against narcotics. International organizations consider Georgia as one of the serious transit countries for narcotics. Abuse of office by high rank officials of previous government and taking this illegal busiuness almost to the state level during the years of National Movement in the Office, made the territory of Georgia almost the present to the drug cartel. New government will not be able to handle the drug related problem alone.

The Agreement aims at sharing European experience in this field, rendering practical assistanceand taking preventive measures on the territory of Georgia. Though there are assumptions that if Georgia is not active in this direction Europe would not show high interest. The amount of goods entering the EU from Georgia is not big. The EU special services can carry out control over it within the perimeters of the EU borders which will be practically useless for us. On the contrary, load on Georgia, as a transit country will increase even more as there would not be a serious controlling force operating on the territory of the country.

Articles 19 and 20 refer to joint cooperation in the fields of money laundering and fight against terrorism. At first sight it seems as if Georgia is protected from terrorist attacks and the risk of terrorist attacks and emerging terrorist organizations is low; however, the thereat is that Georgia is a key transit country for exporting terrorism.

The fact that the number one killer in the world, Ruslan Papaskir (from the North Caucasus), nicknamed “zoons”, had Georgian passport issued during the period of National Movement and he used the passport worldwide, represents Georgia as a country supporting terrorism.

The fact that there are several conflict regions around Georgia should be taken into consideration. We are facing the serious trend of unconventional forces becoming active which is reflected on Georgia too. EU has a huge informational and hi-tech base, well-trained special services amd serious funds for fighting against terrorism. On the basis of this Agreement the area of fighting against terrorism broadens and Georgia falls under the responsibility of it.

One of the consistant parts of threat arising from unconventional forces and weapons is the movement of chemical, biological, nuclear and radiologic material on the territory of Gergia. Creation and use of a so-called “dirty bomb” is a question of time and the main goal of the modern world is minimization and prolongation of this threat in time. Despite the fact that Georgia is not a nuclear country, movement of these materials on the territory of Georgia is quite active and it creates a serious threat.

We should remember that Physical Institute of Sokumi which produces radiological material, actinoids and lantanoids is not controlled by international organizations. This is the institute, where the material intended for nuclear weapon is produced. And there is Lugari lab in Tbilisi. Despite the fact that the lab is one of the most protected labs in the EU, threat of terrorist attack is still substantial. In case of terrorist attack the results will go beyond the region and will turn into sub-regional. This is a huge challenge for our government. Interest of Europe in this field is very high and assistance from the EU and taking preventive measures on the territory of the country can be an effective means of minimization of the threat of terrorism and unconventional arms.

Minimization and neutralization of the threats is a task of vital importance for Europe. Georgia is quite weak against them. Thus, taking preventive measures on the territory of our country and assistance of Georgia in this regard implies achieving the goal for Europe. It can be said that us in this fieldwe are more important for them than they are for.

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