Economics

Myth that European market will remain closed for Georgia is misleading

18 August, 2014

The significant component of the Association Agreement concluded between Georgia and EU is establishing deep and comprehensive free trade (DCFTA). DCFTA regulates wide range of issues related to trade (food security, manufacturing standards, trade in services, etc) and gives the parties better access to each other’s markets.

Once DCFTA enters into force, the customs tariffs between EU and Georgia will be abolished and this will allow Georgian exporters to decrease the costs and establish themselves on the EU market.  Georgian wine will enter EU market without any customs duties, which means that Georgian exporters will save 32 Euro for each hectoliter exported. Overall, Georgian business will save around 90 million Euro annually.

DCFTA also provides for harmonization of Georgian legislation and institutions with the EU regulations, which shall facilitate creation of predictable and investor attractive business environment in Georgia. Once food security and product manufacturing standards are implemented, competitiveness and quality of Georgian products will increase and consumers’ security will be better protected.

According to an independent study, DCFTA shall facilitate development of trade relations: Georgian export will increase by 12%, while import by 7.5%. Apart from this, it is expected that the gross domestic product of Georgia shall increase by 4.3%. The average salary of Georgian citizens shall increase by 3.6%, while consumer prices shall decrease by 0.6%, which will increase purchasing power of the population.

The advantage of DCFTA is evident also vis-à-vis other alternatives in the region. For instance, by entering into customs union of Russia-Kazakhstan-Belarus, Georgian business will have access to the market of 170 million consumers, the total turnover of which is around 2.5 trillion USD. However, Georgia will not be able to carry on independent trade policy, including will not be able to conclude free trade agreement with other countries and will be forces to rescind those that are in force now.  According to the World Bank study, entering into the customs union will bring only negative results and may even result in decrease of GDP. Georgia will be forced to increase customs tariffs, which will decrease trade turnover, increase consumer prices and will deteriorate investment climate.

On the other hand, DCFTA provides for duty free entry of Georgian products on the largest market in the world with 500 million consumers and GDP above 17 trillion USD. In contrast to customs union, DCFTA does not include restrictions on development of trade with other countries. On the contrary, after implementing European standards, it will be easier for Georgia to agree on free trade regime with other countries. Apart from this, Georgian business will carry business in a secure, corruption free environment based on rule of law.

Gigla Mikautadze

Sources:

Title IV of the Association Agreement - trade and trade related matters: www.economy.ge/ge/dcfta

Study of impact of sustainable trade relations: http://trade.ec.europa.eu/doclib/docs/2013/february/tradoc_150566.pdf

An Initial Estimation of the Economic Effects of the Creation of the Customs Union on Its Members:

http://siteresources.worldbank.org/INTPREMNET/Resources/EP47.pdf

Source of myth:

Prime-Time, 30 June

Micheil Khubutia, Chairman of Georgian Union in Russia: "I doubt whether Association Agreement will benefit Georgian economy at all. Our production will never enter European market and neither anybody will invest in Georgia."

http://ptpress.ge/index.php?year=2014&magazine_id=389&topic_id=9337#.U7pdvvmSxp4

 

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