Georgia Speculating on Russia’s Sanctions 

Georgia Speculating on Russia’s Sanctions 

Georgia Speculating on Russia’s Sanctions 

The FINANCIAL -- With USD 165,992,500 Russia has become the third largest trade partner for Georgian exporters as of January-July 2014. The Georgian Government gladly talks about the increased potential of the export volume to Russia, ignoring the EU’s recommendation to abstain from replacing the European food products on the Russian market. Peter Stano from the EU Commission said that he would not speculate on the EU’s response towards Georgia, meanwhile adding that the EU would “appreciate support for their efforts”.

Georgian officials refuse to meet the EU’s recommendations regarding advice to limit trade with Russia claiming that they “have not received any official statement from the EU”. The Ministry of Agriculture told The FINANCIAL that an official recommendation or message has not been delivered by the EU.

However, Peter Stano, Spokesman of Commissioner Štefan Füle, told The FINANCIAL that “the EU has addressed a clear call to third and candidate countries”.

The Ministry of Economy did not respond to The FINANCIAL’s request to comment on the issue. The spokesperson for the Ministry said that they are awaiting an official answer from the Minister.

“Regarding the trade situation with Russia, after Russia introduced an import ban on certain EU products, the EU addressed a clear call to third and candidate countries. This call stated very clearly that in order to ensure the unity of the international community and to uphold international law, the European Union expects third and candidate countries to refrain from measures which are aimed at exploiting new trading opportunities arising from the introduction of these measures. This is what has been and is being communicated to all our partner countries concerned via standard diplomatic channels,” Peter Stano, Spokesman of Commissioner Štefan Füle, European Commission, told The FINANCIAL.

“I agree that there have been many statements made by various representatives. However, statements that are officially delivered to the Georgian Government will be considered the most significant. Accordingly, in this respect there has been nothing official,” said Otar Danelia, the Minister of Agriculture of Georgia.

On 23 August Danelia stated that sheep, fish and honey might be added to the list of Georgian products exported to Russia.

On 7 August the Russian Government declared an absolute prohibition on deliveries of meat products, vegetables and fruit, seafood and cooled fish, milk and dairy products from all European Union countries, Australia, Canada, Norway and the USA. The measure was taken in response to the sanctions imposed on Russia. On 20 August the Prime Minister Dmitry Medvedev entered changes into the list; live fish was added to it.

“The Georgian authorities view the increased volume of export to Russia as a positive. This is the main reason why they are not taking into account the EU’s appeal,” said Giorgi Tsimintia, Head of the Board at the Association of Young Economists of Georgia.

“If Georgia continues to increase its export to Russia then this will not have a negative impact on the two sides’ further relations. Besides this, the Georgian market is too small to fill the gap left on the Russian export market by the EU,” said Giorgi Tsimintia.

According to the Georgian National Statistic Center, during January-July 2014 export to Russia totalled USD 162,992,500. Export to Russia amounted to USD 63,695,100 in the prior-year period. During the current year Russia has become the third largest country for Georgian exporters. Georgia’s northern neighbour has made up 10% of the total export basket, up from the 4% of the data of the previous year.

In Tsimintia’s words, the further growth of the export share on the Russian market is up to manufacturers and intermediary distributors. He believes that the two sides should be especially cautious while trading on the Russian market. “There is always a high risk of the closing of the Russian market. Therefore, exporters are recommended to diversify their export basket as much as possible. They should avoid being highly dependent on the Russian market,” he advised.

“The Government cannot make the decision to increase or decrease the export share. Officials can only encourage this through various methods, such as cooperation with Russian officials to permit more Georgian products to be exported. They can also act in the opposite way; they can establish restrictions on Russian export,” said Tsimintia.

“If the Government’s encouragement refers to the creation of abilities for exporters, then they should do it. However, if the encouragement refers to appeals or subsidies and other kinds of support to promote export, then they should not do it,” he added.

“When it comes to the crisis in Ukraine, the EU has been in contact with candidate and partner countries across the globe to present its positions and we continue to seek alignment with our measures. While we continue to seek alignment with our measures and appreciate support for these efforts this is a decision for our partner countries to take themselves,” said Stano.

The EU adopted sanctions against Russia because of the breach of international law by Russia with the illegal annexation of the Crimea and the continued destabilisation of the East of Ukraine. According to Stano, the sanctions have a clear legal basis and are designed in a way that allows them to be changed or reversed based on developments.

“Our partners are free to decide whether to align with these decisions or not. We are not pressuring anyone - this is not the nature in which the EU does policy. We are explaining our view that it is not beneficial for them to benefit from the current circumstances,” Stano said.

In Stano’s words, it is far too soon to quantify the potential economic impact on the EU. “The value of our exports of the now forbidden products to Russia last year was EUR 5.3 billion. However, for many products this was just 1% or 2% of EU production and we are optimistic that in the medium-term we can find alternative markets elsewhere in the world, or increase consumption on the EU market. In any case there has already been a huge impact on the Russian consumer who is losing the wide variety of high quality European products which were meeting the highest sanitary and quality standards at competitive prices. Given Russia’s relatively low level of food self-sufficiency and the need to import half of its requirements for some foodstuffs, the Russian consumers are already now the most obvious losers. Not only can they expect shortages of fruit, vegetable, dairy and meat products especially in the short-term, they must also expect an increase in prices for these products. And even then, market supplies may not include their usual choice of products,” said Stano.

The EU member states make up 20% of the total export basket of Georgia. During January-July 2014 Georgian export to EU countries amounted to USD 338,625,900, up from USD 257,096,700 from the prior-year period.

“The EU supports Georgia and Georgia’s economy already in many ways. This support is becoming more systematic and wide-ranging after the signing of the Association Agreement which is a blueprint for modernisation and for the implementation of which the EU will provide assistance to Georgia,” said Stano.

Recently, Republican Senator John McCain expressed his worries that Georgia might get closer to Russia again. Contrary to McCain, from the EU’s point of view, the Georgian leadership is giving a clear message - expressed in the signing and ratification of the Association Agreement with the EU.

“We look forward to the implementation of this very important treaty that puts our partnership on the same basis of values and principles and will open new economic opportunities for both sides,” Stano told The FINANCIAL.

“Here is a simple dilemma which faces the Georgian Government”, Ghia Nodia, Professor at Ilia State University told The FINANCIAL. Nodia, who often was criticized for his excessive support of previous pro-western government, believes that current Government does not reflect the main areas of EU policy with its general politics and rhetoric towards Russia and Ukraine (not just with the economic embargo). 

“Whether there was any formal “request” from the EU does not make any sense. It is hard to determine what results will follow it. However, the main interest of the EU towards Georgia was determined by the fact that Georgia had pro-European values and was an outpost of pro-western policy in the region; that it would stubbornly follow pro-western policy based on some idealistic beliefs. This image is abased. Currently Georgia has an image of a country with uncertain policy.

“The short-term economic benefits are on the other side of the scale. They are linked to the Government’s domestic policy interests. Restoration of import to Russia is one of its main advantages. There is also the incomprehensible strategy, inspired by Bidzina Ivanishvili, of not irritating Russia. I do not think that either this short-term economic benefit or this policy can be in line with Georgia’s long-term strategy”, Nodia said.