GEORGIAN WINDOW TO EUROPE

Agreements related to Georgia's European integration are taking effect in September. The state has already ratified association agreements with four countries: Lithuania, Latvia, Bulgaria and Romania. As for the rest, the process will be completed by the end of the year. 

The main and essential part of the EU association is the Deep and Comprehensive Free Trade Agreement (DCFTA). In essence the free trade area will not be all that free, not at all comprehensive and not deep enough to have an impact on the economic and therefore social situation in the country in the short term.    

Moreover, the agreement seriously restricts the export to Europe of 28 items of goods made in Georgia. Thus for instance so-called "market access fees" are being imposed on a whole range of Georgian products, such as grapes, apples, pears, tangerines along with all citrus plants, all kinds of vegetables and all kinds of fruit. Thus the few things that Georgia can really sell in the EU countries will be subject to an intricate tax that is just formally not called "duty". 

As is known, Azerbaijan is one of Georgia's major foreign trade partners and investors. How will Georgia's westward integration affect Azeri-Georgian mutual relations and will it lead to suspending the free trade agreement between the two states as was the case with Russia?   

Economic relations between Georgia and Azerbaijan took shape in 1993. The countries have signed more than 100 bilateral documents since then. Most of them were designed to regulate economic relations. Azerbaijan remains Georgia's second biggest foreign trade partner after Turkey. According to the National Statistic Service of Georgia, Georgia's trade turnover with Azerbaijan totalled 584.3m dollars in the first half of 2014 (10.7 per cent of Georgia's total foreign trade transactions). 

Azerbaijan remains the biggest export market for Georgia accounting for 20.4 per cent of its total export. In terms of investments, Azerbaijan is also gathering momentum: direct investments in the Georgian economy increased by 60 per cent last year. Azerbaijan invested 89.9m dollars in Georgia in 2013 and thus placed fourth among that country's biggest investors. 

Altogether, Azerbaijan's total investments in Georgia's economy have reached 1bn dollars. 

Azerbaijan and Georgia are involved in large-scale energy and transport projects in the region, such as the Baku-Supsa, Baku-Tbilisi-Ceyhan and Baku-Tbilisi-Erzurum pipelines and the Baku-Tbilisi-Kars railway. 

In the years to come, investments in Georgia's economy will total 2bn dollars as a result of implementing the Southern Gas Corridor project. 

As regards the above mentioned agreement with the EU, Georgia's Foreign Ministry has reported that, according to the EU's established procedures and Article 431 of Georgia's EU Association Agreement, specific provisions of the Agreement will start taking effect temporarily as early as 1 September this year. On that occasion, some 80 per cent of the Association Agreement will come into force including the component of comprehensive free trade area. 

Meanwhile the Russian Economic Development Ministry has already prepared a draft resolution of the government to suspend Georgian-Russian free trade accords. 

Despite the fact that Georgia has not been a member of the Commonwealth of Independent States (CIS) since 2009, the free trade area between Azerbaijan and Georgia has remained and works on. Azerbaijan did not sign the latest agreement in 2013 on free trade area with the CIS but bilateral agreements in this domain with CIS member states including Russia remain in effect. 

According to sources in the Azerbaijani government, the signing of the Georgia-EU agreement may also bring about changes in its foreign trade relations with Azerbaijan. These may involve technical barriers and matters related to product quality. "Therefore it is necessary to work this aspect over, examine the DCFTA signed by Georgia with the EU and see what requirements are laid down there as Georgia will now have a common market with the EU," the government believes. Thus Europe may demand that products imported from third countries should not enter European markets via Georgia. "In this context, there is a problem to be examined and our specialists should scrutinize the DCFTA provisions," a contact in the government said. 

The Foreign Ministry of Georgia has already asked the Ministry of Economy and Industry of Azerbaijan to examine the DCFTA for compliance with the two states' free trade area agreement. 

As regards Azerbaijan's gains from Georgia's EU integration, it may become an ideal option that Baku can build up its economic cooperation virtually without hindrance via Georgia as they have a free trade area agreement. Through a group of enterprising Azerbaijani companies working in Georgian territory, Azerbaijani products could enter European markets and without unnecessary taxes and duties that the EU will eliminate for Georgia within a few years.   

Thus Georgia is becoming a kind of window to Europe. This means that, given Georgia's fairly liberal legislation, any Azeri businessman can set up a business there and enter the European market. Currently there are about 300 businessmen working in Georgia. 

The chemical industry, rubber and plastic production, machine building, instrument making and metallurgy are expected to find themselves in an advantageous position. Animal husbandry, meat production, the food industry, electronics production and other industries are standing to "lose". Meanwhile, taking into account Azerbaijan's strategy to develop the non-oil sector of its economy and its policy for industrialization, new production facilities are being actively created in this country. Correspondingly, many end product components can be made in Azerbaijan while finished articles could enter the biggest market of Europe through Georgia-based companies (creating additional jobs for that country) and this is a guarantee of development and additional profits. 

In any event, Azerbaijan will not lose because of the innovations. On the contrary, if it uses the emergent prospects reasonably, it may get additional opportunities to export its products.