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EU FOREIGN TRADE PROBLEMS AND PROSPECTS IN GEORGIA'S EURO-INTEGRATION PROCESS
ROMAN MAMULADZE,
Batumi State Maritime Academy, PHD of Economy, Professor MERY GABAIDZE,
Batumi State Maritime Academy, PHD student, teacher
The strategic geopolitical location of Georgia and historical aspiration to the West (European orientation) greatly determines the external political course of our country, the main priority of which is integration into the European and Euro-Atlantic structures.
The EU-Georgia relations started in 1992 following the recognition of Georgia's independence by the European Union.
Georgia started preparation process to sign the Partnership and Cooperation Agreement (PCA) from 1994. The Agreement was signed in Luxembourg on 22 April 1996. The PCA, which determines the major framework for future relations between the EU-Georgia, was signed by the EU Member States, the President of the European Commission and the President of Georgia and entered into force in 1999.
Since 1995 Georgia benefits from the EU's Generalised System of Preferences (GSP).
On 1 September 1997, in compliance with the resolution of the Parliament of Georgia, Georgia started the harmonisation process of national legislation with the EU law.
On 14 June 2004, the Council of the European Union decided to launch the European Neighbourhood Policy (ENP) for Armenia, Azerbaijan and Georgia to enhance cooperation with neighbour countries.
In 2005, Georgia was granted additional preferences offered under the Generalised System of Preferences Special Incentive Arrangement for Sustainable Development and Good Governance (GSP+). The Arrangement was valid until 2008.
The European Neighbourhood Policy Action Plan (ENP AP) between the EU and the Government of Georgia was adopted on 14 November 2006. The Action Plan provides strategic objectives of the EU-Georgia cooperation and ensures implementation of relevant political and economic priorities.
In 2008, the EU extended the General System of Preferences (GSP+) Special Incentive Arrangement for Sustainable Development and Good Governance for 2009-201 1.
On 3 December 2008, the European Commission adopted a Communication on the Eastern Partnership. The Eastern Partnership is an EU policy aimed at bringing Eastern Neighbours (Armenia, Azerbaijan, Belarus, Georgia, Moldova and Ukraine) closer to the European Union. (For further details see the Eastern Partnership).
On 10 May 2010, the General Affairs Council approved a mandate of the European Commission to start negotiations on the Association Agreement with Georgia.
On 15 July 2010, the negotiations on Association Agreement including the Deep and Comprehensive Free Trade Area (DCFTA) was launched.
The agreement on «Mutual Recognition and Protection of Geographical Indications of Agricultural Products and Foodstuffs», signed between the EU and Georgia, entered into force on 1 April 2012.
The negotiations on the Deep and Comprehensive Free Trade Area (DCFTA) Agreement between the EU and Georgia were officially launched on 28 February 2012.
Оn 22 July 2013, the EU and Georgia successfully concluded negotiations on the Deep and Comprehensive Free Trade Area (DCFTA), as part of the Association Agreement.
On 22 November 2013, the European Commission and the EU Member States recognised efforts by Georgia to comply with international standards on training and certification for seafarers, thus effectively allowing seafarers with Georgian certificates again to work on EU vessels
On 29 November 2013, the European Union and Georgia initialedthe Association Agreement (AA), including the Deep and Comprehensive Free Trade Area (DCFTA) Agreement at the Vilnius Eastern Partnership Summit.
On 26 June 2014, the Association Agenda between the European Union and Georgia was adopted, which establishes a set of jointly agreed priorities for the period 2014-2016 with a view to preparing for the implementation of the Association Agreement, including the Deep and Comprehensive Free Trade Area (DCFTA).The Association Agenda has replaced the European Neighbourhood Policy Action Plan (ENP AP).
On 27 June 2014, the Association Agreement was signed between the European Union and the European Atomic Energy Community and their Member States, of the one part, and Georgia, of the other part, which aims to deepen political association and economic integration with the EU.
On 18 July 2014, the Parliament of Georgia unanimously voted in favor of the ratification the EU-Georgia Association Agreement, including the Deep and Comprehensive Free Trade Area (DCFTA).
On 1 September 2014, provisional application of the Association Agreement started whereby 80% of the Association Agreement came into force, including the Deep and Comprehensive Free Trade Area. The process will continue until the European Parliament and national legislative authorities of the EU Member States finalise the ratification process.
The process of integration into the European
Union largely determines the economic situation in the country.Macroeconomic indicators of Georgia:
- As a result of annual adjustment, the 2014 Gross Domestic Product (GDP) of Georgia at current prices totaled GEL 29 150.5 mil., up by 8.5 percent y-o-y. In the same period the real growth of GDP amounted to 4.6 percent and the deflator increased by 3.8 percent y-o-y.
- GDP per capita in 2014 amounted to 6491.6 lari ($ 3,676)
- The largest share in the sectoral structure of GDP is held by Trade services (17.5 percent) and Industry (16.9 percent), followed by Transport and communication services (10.4 percent), Public administration (9.9 percent), Agriculture, forestry and fishing (9.3 percent), Construction (7.1 percent) and Health and social work (6.0 percent).
- The average annual inflation rate in compare with the previous year grew by 3.1%, and by the end of 2014 amounted to - 2.0%.
- Also very important are the changes in the labor market. In 2013, the unemployment rate compared
with the previous year decreased by 0.4% and amounted to 14.6%.
International trade plays a significant role in improving the macroeconomic indicators of the country.
In 2014 preliminary external merchandise trade (excluding non-organized trade) in Georgia amounted to USD 11457 million (preliminary data), 5 percent higher year-on-year. The exports equaled USD 2861 million (2 percent lower), while the imports stood at USD 8593 million (7 percent higher). The negative trade balance was USD 5735 million in 2014 and its share in external trade turnover constituted 50 percent.
In 2014 the external trade of Georgia with the EU countries amounted to USD 2990 million, up by 4 percent compared to the corresponding indicator of the previous year. Exports amounted to USD 621 million (2 percent higher), while import amounted to USD 2369 million (4 percent higher). The share of these countries in the external trade of Georgia
amounted to 26 percent, 22 percent in exports and 28 percent in imports (in 2013 26, 21 and 28 percent correspondingly). 30 percent of the trade deficit came to the EU countries (32 percent in 2013).
In 2014 the external trade of Georgia with the CIS countries totaled USD 3593 million (lower by 5 percent compared to 2013). Exports stood at USD 1465 million (10 percent lower), while imports equaled USD 2127 million (2 percent lower). The share of the CIS countries in the external trade of Georgia constituted 31 percent, 51 percent in exports and 25 percent in imports (In 2013 35, 56 and 27 percent, respectively). In 2014, compared to the corresponding period of the previous year, CIS countries accounted for 12 percent of the overall trade deficit (11 percent in 2013).
In 2014 motor cars reclaimed the first place in the
list of top export items, equaling USD 518 million, or 18 percent of total exports. Exports of ferroalloys totaled USD 286 million, and its share in the total exports amounted to 10 percent. Copper ores and concentrates occupied the third place. Exports of this commodity group stood at USD 248 million and 9 percent of the total exports.
The top import commodity in 2014 was Petroleum and petroleum oils, imports of which amounted to USD 918 million and 11 percent of the total imports. Motor cars commodity group followed in the list with USD 715 million, or 8 percent of imports. Petroleum gases and other gaseous came third with USD 369 million (4 percent of imports).
In 2014 share of the top ten trading partners in the total external trade turnover of Georgia amounted
Major commodity groups by exports
2013 2014*
Thsd. US Share in total Thsd US Share in total
Dollars m Dollars i%)
TotaJ Exports 2 908 499.0 100.0 2 361 191,0 100,0
Of which:
Motor cars 703 ee2.2 24.2 517 786,3 10,1
Ferro-alloys 229 E93.5 7.9 285 752,6 10.0
Copper ores and concentrates 161 632.8 5,6 248 089,7 8,7
Other nuts, fresh or dried 166 712,6 5.7 183 398,6 6,4
Wine of fresh grapes 127 850,9 4,4 180 721,6 6.3
Mineral or chemical fertilizers. ■
nitrogenous 130 575,5 4.5 137 622,0 4,8
Waters, natural or artificial mineral and
aerated waters 106 083.8 3.7 137 123,6 4,8
Undenatured ethyl alcohol, spirits, ■
liqueurs and other spirituous beverages 99 865,6 Э.4 95 190,2 3.3
Medicaments 52 0 69,3 1.8 92 065,1 3,2
Bars and rods of Iran 62 517,0 2,1 63 735,6 2,2
Other commodities 1 066 610.8 36.7 919 704,6 32,1
Major commodity groupa by imports
2013 2014*
Thsd US Share in Thsd, us Share in
Dollars total {%) Doltars total f%)
Total Imports 8 025 715,4 100,0 8 596 270,0 100,0
Of which:
Petroleum and petroleum oils 954 408.3 11,9 918 342.9 10,7
Motor cars 710 482.7 3.9 715 050.6 3,3
Petroleum gases and other gaseous 316 726.4 3,9 368 895.1 4,3
Medicaments 280 735.6 3.5 314 626,1 3,7
Telephones for cellular networks or for
other wireless networks 152 562.5 1,9 195 565,1 2,3
Copper ores and concentrates 113 057.0 1,4 165 265,8 1,9
Wheat 184 336.6 2,3 151 717,5 1,3
Cigarettes 95 690,2 1.2 115 474,2 1,3
Automatic data processing machines 90 623,2 1,1 104 114.1 1,2
Structures and parts of structures of iron
or steel 65 413.3 0,8 90 667,8 1,1
Other commodities 5 061 579.6 63,1 5 456 530,8 63,5
to 68 percent. The top trading partners were Turkey (USD 1966 million), Azerbaijan (USD 1182 million) and Russia (USD 853 million).
The European Union is Georgia's major trading partner. The trade turnover between the two hit almost 2 billion US Dollars in January-August 2015 i.e. 31% of Georgia total foreign trade. In the same period, Russia accounted for only 7.1% of Georgia's total foreign trade. Georgian exports to the EU member states doubled for the last 5 years and made up 413 million US Dollars in the first eight months of 2015. In contrast, Georgian exports to Russia amounted to 98 million US Dollars, which is 50% less compared to the same period last year.
Georgian exports to the EU rose by 12% in the first 6 months of DCFTA. Exports of some Georgian products, including hazelnuts, fruit juices and copper doubled or even tripled. Wine export also rose by 6%. Despite problems that caused the slowdown of Georgian economy and the reduction of overall exports by 24% in January-August 2015, export of Georgian goods to the EU did still increase by 1%.
Recently, trade relations with the European Union are strengthening, but there are a number of difficulties faced by Georgia. One of them - it is a problem related to transportation. In particular, there are quite expensive domestic transportations. Also there is no direct regular ferry service to Europe, which would create the possibility of exporting Georgian products in a timely and cost-effectively fulfill orders of European consumers.
In addition, there is a problem of information availability. Only the efforts of the government to inform the Georgian businessmen about new export markets are insufficient. According to estimates of the Georgian statistical service, from January to October 2015, the share of 10 largest trading partners in the gross foreign trade turnover of Georgia was 64%. This means that the country still trades only with the «narrow circle» of countries.
One of the main problems of modern business is the level of staff competence. The European market is characterized by a high competition, so the products supplied to the market, should be of high quality and low cost.
Therefore, the education system in the country should provide training of highly qualified personnel in the field of business administration. Competent managerial decisions can help to organize production of competitive products. In my opinion, it is necessary to strengthen the curriculum with high share of such disciplines as «Logistics Management» and «Standardization and certification of products and services.»
RESOURCES
1. Mamuladze R. A. Phutkaradze Z. N. "Standardization and Its Problems in Georgia", MINISTRY OF EDUCATION AND SCIENCE OF UKRAINE, State Higher Educational Institution "KYIV NATIONAL ECONOMIC UNIVERSITY NAMED AFTER VADIM HETMAN, II International Scientific-Practical Conference - «STRATEGIC IMPERATIVES OF MODERN MANAGEMENT», KYIV, May 22-23, 2014
2. R. Mamuladze, «East - West energy corridor in the concrete fight for energy supply sources», Tbilisi State University, 2nd Interuniversity scientific - practical conference on the topic «Indicators of competitiveness in the world economy: Problems and Prospects. Tbilisi, 2010;
3. R. Mamuladze, G. Mamuladze, «Europe's energy security and competitiveness of the transit corridor of Georgia», Tbilisi State University, I Interuniversity scientific - practical conference on the topic «indicators of competitiveness in the world economy: Problems and Prospects. Tbilisi 2009;
4. http://www.geostat.ge/cms/site_images/_files/ english/bop/FTrade__2014_ENG.pdf
5. http://www.eu-nato.gov.ge/en/eu/cooperation
6. http://eeas.europa.eu/delegations/georgia/eu_ georgia/political_relations/index_en.htm
