Trade Liberalization with the EU to Increase GDP in Georgia by 4.3% Minimum

Trade Liberalization with the EU to Increase GDP in Georgia by 4.3% Minimum

Trade Liberalization with the EU to Increase GDP in Georgia by 4.3% Minimum

The FINANCIAL -- An impact assessment study has estimated that trade liberalization with the EU will result in an increase of GDP in Georgia of no less than 4.3% per year, a rise in exports by a significant 12.4% and increase of imports by 7.5%.  Boris Iarochevitch, Deputy Head of the Delegation of the European Union to Georgia, said that the EU is and will remain for Georgia an important partner for imports.

“One of the effects of the approximation to EU regulations is that it is likely to restrict the inflow of low quality products from third countries, creating the conditions to also boost domestic production or imports from the EU,” said Iarochevitch.

In an exclusive interview with The FINANCIAL, Mr. Iarochevitch talked about the further steps that Georgian businesses will have to undertake on their way to EU integration.

Q. Which are the potential Georgian companies that could be exported to EU markets?

A. Direct exports to the huge European market (500 million consumers) will be possible, in principle, to all companies, irrespective of their size or the sector in which they operate, as long as they are able to adapt their production standards to those required by the EU. This will require capacity to innovate, upgrade systems and processes up to higher quality standards, and fast react to the demand in Europe for new products (e.g. “niche products”).  And of course, producing according to EU standards implies that the same goods are highly qualified for domestic consumption. This will benefit all Georgian consumers and will positively reflect on prices thanks to increased competition. However, it’s not only a business responsibility. The role played by the Georgian institutions in putting in place economic/commercial policies conducive to boost competitiveness, facilitate exports and promote local investments is fundamental.

Q. What is the approximate cost that businesses need for implementing EU equal standards?

A. The legal harmonization to EU standards implied by the AA/DCFTA is a timely and demanding process, which will transform, in the long run, the Georgian internal market structure. Significant efforts are required not only from the state authorities, but also from the business community. However, more than a cost, it is more appropriate to talk about investment for the future. In other words, the costs involved in the purchase, i.e., of new tools and equipment, carried out for the production of a new type of good, needed for complying with EU standards, can be translated into productive and useful technological investments for modernization and competitiveness. This kind of costs depends greatly on how well the requirements of the market and customers are implemented. We are talking about a long and complex - but highly rewarding - process, which requires great responsibilities and commitment. The analysis and quantification of these investments differ from sector to sector and for each company profile.

Q. How long will it take local companies to enter EU markets?

A. Potentially, since the entry into force of the provisional applications of the trade agreements, i.e. in the early months of 2015, all companies that, at that date, meet the EU requirements will be able to start exporting. But, at the same time, the Georgian market itself further opens interesting perspectives for European investments, including in partnership with Georgian companies. The expected benefits therefore concern both producers and consumers, Georgians and Europeans.

This will be certainly encouraged by the speed of the implementation of the legislative and structural reforms, required by the Agreement, for which Georgia, since from the early stages of negotiations, has shown its willingness to lead with extraordinary effectiveness.

The rapidity of entering into EU markets largely depends on the sector of activity, the stage of development and degree of maturity of the business, its innovative capacity, the management attitude, market approach, availability of human and financial resources. Again, it is extremely important to have clear information on the government long-term economic strategy and measures to support economic development, including policies supporting competitiveness and innovation, which are crucial ingredients for exports. In any case, to take advantage of DCFTA opportunities, Georgian businesses must start preparing and plan strategically in the short, medium and long run. Major changes in businesses’ internal systems and procedures, as well as new up-front investments, might be necessary. Georgian companies differ by their level of knowledge, capacity to export and innovate, and financial strength. Most small and medium size enterprises still lack export capacities, therefore for them DCFTA will initially mean “adaptation to a transforming local market” more than entering new markets. Therefore, the time it will take for local companies to enter EU markets are a case-by-case exercise. The starting point however for any business, is to clearly understand the Association Agreement/ Deep and Comprehensive Free Trade Agreement  (AA/DCFTA) provisions, preferably if translated into business language. For this, we strongly rely on the cooperation with business associations, central and local authorities and donors’ supporting measures as businesses must be informed on the consequences of the package of reforms on their day-to-day operations.

Q.  Which products will be imported from the EU?

A. On the occasion of the 3rd Eastern Partnership summit, which took place on 28 and 29 November 2013 in Vilnius, Eurostat, the statistical office of the European Union, issued data on trade in goods between the 28 EU Member States and the 6 Eastern Partnership countries. According to these dates, primary goods, as food and drink and raw materials, and manufactured goods, as chemicals, machinery and vehicles, continue their positive trend of export from the EU to Georgia. The import of these goods, presumably, will be growing together with the general category of other manufactured goods. This will allow the presence on the Georgian market of a more wide range of products at affordable prices and overall better quality.

The EU is and will remain for Georgia an important partner for imports. One of the effects of the approximation to EU regulations is that it is likely to restrict the inflow of low quality products from third countries, creating the conditions to also boost domestic production or imports from the EU.

Q. What are the main benefits that the Georgian economy will get after entering EU markets?

A. The Free Trade Area will provide the gradual integration of Georgia with the EU’s Internal Market, with the following benefits:
•    For domestic and foreign investors and entrepreneurs, as more legal certainty creates trust, as well as a fair and business-friendly environment, and reduces corruption (e.g. by introducing transparent rules on competition);
•    For the consumers, as Internal Market rules would institute modern standards in the field of industrial products and food safety and would ensure better product quality;
•    For inventors and artists, since their ideas and creativity would be better rewarded thanks to higher standards of protection and enforcement of Intellectual Property Rights;
•    For central and local authorities, as they would spend more efficiently, and, hence, save taxpayers’ money thanks to a competition-based and transparent system for public tenders.

A predictable legal and institutional environment strengthened by the DCFTA will greatly increase the attractiveness of Georgia as an economic partner. It will facilitate business-to-business contacts and encourage foreign and domestic investments. The fact that Georgian companies, goods, services and institutions will be treated along the same lines as in the EU is an immense benefit and will lead the country on the path to sustainable economic growth.

The DCFTA will establish a transparent scenario for economic operators who would be able to prepare their strategies based on the agreed calendar of regulatory approximation with the legal framework of the EU. Besides, the harmonization to public procurement rules will also allow Georgian companies to access EU public contracts.

In the long run, an impact assessment study has estimated that trade liberalization with the EU will result in an increase of GDP in Georgia of no less than 4.3% per year, a rise of exports by a significant 12.4% and increase of imports by 7.5%.