CONTENTS. Topic At A Glance A free trade area with the EU: what does it mean for Georgia? 4

Issue 1 NOVEMBER 2012 CONTENTS DCFTA Highlights Third round marks further progress in the talks 2 After the October 1st elections: DCFTA-reforms need to continue 2 The EU negotiating team meets with the business community 3 Topic At A Glance A free trade area with the EU: what does it mean for Georgia? 4 Did You Know That The European Commission negotiates trade agreements for the EU 7 The EU is Georgia's first trade partner 7 Out now: a DCFTA impact study foresees a 12% exports growth and 4.3% GDP increase 8 Upcoming Trade Events 8 Dear Reader, Relations between the European Union (EU) and Georgia have intensified over the last few years across a broad policy spectrum. Through the Eastern Partnership, the EU and Georgia have engaged in an ambitious agenda, aimed at bringing Georgia closer to the EU. Our common objective is far-reaching democratic and market-oriented reforms, contributing to the political stability and economic development of Georgia. Economic integration is a key element of the Eastern Partnership, not to say its cornerstone. The EU's own integration started this way and has been successful. Today, Georgia and the EU enjoy a very close trade and investment relationship; we are working together to make it even stronger. The start of the Deep and Comprehensive Free Trade Area (DCFTA) negotiations between the EU and Georgia, launched last February, has been a major step forward in this regard. Together, we have been working intensively to reach this point. We still have a busy agenda in front of us and the completion of the DCFTA talks is only one step in a long reform process. The EU stands ready to further assist Georgia along the way. This is the first edition of the EU Delegation newsletter on EU- Georgia trade relations. It will be released on a regular basis, providing updated information and background on relevant EU- Georgia trade and DCFTA-related matters. We hope you will find it useful and informative. The newsletter will solely be distributed via electronic mail. Do not hesitate to forward it to interested persons or suggest new recipients by sending an email to Ms Virginie Cossoul, Trade Attaché at the EU Delegation (virginie.cossoul@eeas.europa.eu). Philip Dimitrov Ambassador Head of the European Union to Georgia D e l e g a t i o n o f t h e E u r o p e a n U n i o n t o G e o r g i a

2 N O V E M B E R 2 0 1 2 E U G E O R G I A T R A D E I N s I G H T DCFTA Highlights Third round marks further progress in the talks The third DCFTA round of negotiations took place in Tbilisi on 25-27 september. The EU was represented by the Chief Negotiator, Mr Philippe Cuisson, and twenty experts from the European Commission and External Action service. The Georgian negotiating team was led by Deputy Minister for Euro-Atlantic Integration, Ms Tamara Kovziridze. Following the start of talks in February 2012, the third round continued to build on progress achieved in previous rounds (March and June). The fourth round of negotiations will take place in Brussels on 26-30 November 2012. Negotiations are progressing well so far, in a constructive atmosphere and at a good pace. During this round, ten DCFTA chapters were discussed in Working Groups: trade in goods; customs and trade facilitation; transparency; dispute settlement; sanitary and phytosanitary measures; technical barriers to trade; intellectual property rights; public procurement; services and sustainable development. Tariff offers for trade in goods (agricultural, fishery, processed agricultural products as well as industrial goods) were also exchanged between the Parties. The offers represent a proposal of each Party on elimination of customs duties over a period of time. Both the scope of these reductions, as well as timeframes for their implementation, are subject to further negotiation between the Parties. These discussions will continue in the upcoming rounds. After October 1st elections: DCFTA-reforms need to continue Following the 1st October parliamentary elections, the new Georgian Government expressed its strong commitment to continue the Association Agreement and DCFTA negotiations at a steady pace. The EU welcomes this declaration. At the same time, it is vital for the new Government to continue the DCFTA-related reforms if the free trade area with the EU is to gradually reveal its full benefits for Georgia. A solid reform agenda and steps undertaken toward its implementation were a precondition to launching the DCFTA negotiations. such was the recommendation of independent experts in 2008, which suggested that only a deep and comprehensive free trade area that is, a free trade area backed by reforms in trade-related areas stands a chance to boost Georgia's economic and trade potential. Therefore, prior to the launch of negotiations, Georgia embarked on a preparatory process to start reforming trade-related areas. These are the areas of most direct relevance to trade in agricultural and industrial goods, for consumer protection and level-playing field for all companies: technical regulations, sanitary and phytosanitary measures, protection of intellectual property rights and competition rules. In parallel to the negotiations, therefore, it is crucial that Georgia's new Government continues the reform process to match the substance of negotiated chapters. The European Union is committed to assisting Georgia in this regard. substantial assistance is being provided, in particular with regard to capacity-building and legal approximation with EU laws. Projects are ongoing to help Georgia to upgrade its food safety system, Quality Infrastructure, public procurement as well as its customs systems.

N O V E M B E R 2 0 1 2 E U G E O R G I A T R A D E I N s I G H T 3 The EU negotiating team meets with the business community In the margin of the DCFTA negotiations last september in Tbilisi, the EU negotiation team met with the business community of Georgia, in order to inform it about the state of play of negotiations and to collect feedback on the business environment. The meeting, organised by the EU-Georgia Business Council (EUGBC, http://www.eugbc.net/) attracted wide interest. lively discussion among participants revealed the importance of awareness-raising among businesses on trade policy so as to support their participation in the trade policy-making process in Georgia. In light of ongoing negotiations, the role of stakeholders, including businesses, is crucial for determining policy objectives, future growth possibilities and economic priorities. The DCFTA process also aims to spread EU best practices and stimulate active participation of Georgian business in policymaking. For this purpose, the EU-Georgia Business Council (EUGBC) established a business-driven Working Group last April to support and further facilitate EU-Georgia trade relations. The Working Group is comprised of representatives from various business associations of Georgia and interested companies. For more information about the EUGBC Working Group, do not hesitate to contact Mrs Tamar Khuntsaria (tamar.khuntsaria@eugbc.net). EU-Georgia Business Council 2012 From left: Badri Japaridze, Vice-Chairman of the Supervisory Board; Boris Iarochevitch, Deputy Head of the Delegation of the European Union to Georgia; Philippe Cuisson, from the General Directorate - Trade of the European Commission

4 N O V E M B E R 2 0 1 2 E U G E O R G I A T R A D E I N s I G H T Topic At A Glance A free trade area with the EU: what does it mean for Georgia? The Eastern Partnership initiative was launched in May 2009 to build upon the European Neighbourhood Policy (ENP). Georgia is among the countries with which the EU aims at enhancing relations in a wide range of policy areas. The Eastern Partnership has brought in particular, a perspective of new enhanced bilateral framework agreements between the EU and its Eastern Neighbours. The EU's current relations with Georgia are based on a Partnership and Cooperation Agreement which entered into force in 1999. This agreement, important as it is, provides for a limited level of cooperation which no longer serves the ambition of the EU or Georgia, nor does it correspond to the advanced stage of bilateral relations. The Eastern Partnership initiative set out an ambitious goal to conclude new association agreements, including deep and comprehensive free trade areas with those countries of the Partnership that were willing and able to enter into a deeper engagement and gradual integration in the EU economy. The DCFTA negotiations between the EU and Georgia were launched in February 2012, following a long preparatory process. let's explain what this may mean for Georgia. What is a free trade area and why is it "deep and comprehensive"? Traditionally, free trade agreements foresee the mutual opening of markets for goods and services. This is mainly done by reduction of import duties and elimination of export duties on goods. since 2006 however, the EU pursues much more ambitious relations with its trade partners because pure elimination of import duties is no longer sufficient for efficient trade. Current import duties at world level are very low. Other areas have come to bear significance for world trade. That is why we now tackle trade-related disciplines, such as procurement rules, intellectual property, sustainable development or competition, in which the EU seeks to find common ground with trade partners and foster bilateral trade. This is what is called "comprehensive" negotiations. The relationship with Georgia goes one step further, however. With very low global tariffs, other obstacles to trade, 'behind the border' domestic policies, gain ground. secondly, Georgia aspires to be 'associated' with the EU, which implies a much closer relationship than other FTAs. That is why the free trade area will also be deep because it aims at eliminating these 'behind the border' obstacles to trade through adoption of a portion of EU legislation that will further boost Georgia's trade and investment opportunities. At the end, once the related reforms are completed, Georgia will be associated to certain EU policies and, if such an agreement is made, participate in the Internal Market like EU Member states in selected trade-related areas. The EU s Internal Market consists of 27 Member states. The removal of barriers faced by economic operators, as well as the introduction of high standards of consumer protection is the main foundation of the EU. It is widely acknowledged that the Internal Market has created enormous benefits to its members. The free trade area will provide a gradual integration of Georgia with the EU's Internal Market. Extending the Internal Market to Georgia will, inter alia bring benefits for: Domestic and foreign investors and entrepreneurs: more legal certainty creates trust, in addition

N O V E M B E R 2 0 1 2 E U G E O R G I A T R A D E I N s I G H T 5 to a fair and business-friendly environment, and further reduces corruption (e.g. by introducing transparent rules on competition and strengthening protection of intellectual property). In consequence, investors will be attracted to the Georgian market and help diversify Georgian economy by spreading technology and know-how; Consumers: because Internal Market rules would institute modern standards in the field of industrial products and food safety, it would ensure better product quality and lower prices for goods as a result of increased number of products on the market. What are the areas covered by the DCFTA? trade in goods (including gradual elimination of import duties, rules of origin, customs and trade facilitation, sanitary and phytosanitary measures, technical barriers to trade), trade-related energy aspects trade in services and general establishment provisions intellectual property rights and geographical indications public procurement sustainable development competition dispute settlement trade defense instruments transparency provisions Will Georgia's export to the EU grow as a result of DCFTA? At present Georgia enjoys unilateral trade concessions from the EU through the so-called Generalized system of Preferences (GsP+). This system is offering some preferences as compared to the future DCFTA. Once the DCFTA replaces the GsP, EU import duties will be abolished for almost all products. On top of this both sides will address barriers to entry on the EU market of goods such as products of animal origin. Currently these are not admitted to the EU market as they do not conform to EU food safety standards. This would be a major improvement as compared to the current GsP+ treatment which has a unilateral, temporary character and is not negotiable with the EU. For some, DCFTA means a return of burdensome regulations. Is it true? Regulations are not bad per se. On the contrary, they are needed to regulate the behaviour of market operators, to ensure fair but strict rules and to balance market rules with the society s overall well-being and adequate protection (consumers). Business operators, as individuals, are also consumers. Furthermore, regulations are there to manage public goods such as quality infrastructure, road safety, etc. It is true that a DCFTA proposes a very ambitious agenda and implies a lengthy reform process for the Georgian Government. like any process of reform, indeed, it has a cost. However, one should see it as

6 N O V E M B E R 2 0 1 2 E U G E O R G I A T R A D E I N s I G H T short-term costs versus long term benefits. Approximating with the EU law will result in particular, in improved competitiveness of Georgia's products and a better investment climate that is conducive to attracting more and more stable FDIs. It will enhance standards of protection for the consumer (food safety). These, in turn, will have a positive impact on Georgia's socio-economic development. All these elements are on Georgia's long-term agenda to become a modern and developed country. The trade and trade-related reforms inspired by the trade agreement with the EU will help Georgia maintain the pace and direction of reform. What is at stake is more than just the increase of trade flows between the EU and Georgia. It is a further 'modernisation' of the country. Moreover, it is very important to recall that the EU trade related regulatory standards are used by many other countries in the world, notably Turkey, Balkan countries etc., so compliance with those standards will help not only trade with the EU but with other important partners of Georgia. The reform process will be gradual and agreed with Georgia. It is a selective reform process, so not everyone and not all policy areas will be covered. Finally, DCFTA aims to help Georgia upgrade its economic position but is not aimed to replace domestic policies such as healthcare, education or social policy which are crucial to boosting competitiveness by investing in people and knowledge outside the trade domain.

N O V E M B E R 2 0 1 2 E U G E O R G I A T R A D E I N s I G H T 7 Did You Know That In the EU, trade negotiations are conducted by the European Commission's Directorate General (DG) for Trade Trade is an exclusive competence of the EU, which means that the EU only the EU and not individual EU member states - can legislate on trade matters and conclude international trade agreements on behalf of the EU. It means that the executive branch of the EU, the European Commission and its Directorate General for Trade (equivalent of a ministry in the national administration) is responsible for implementation of trade policy. It leads the process, in cooperation with other Directorates (Competition; Enterprise and Industry; Health & Consumers etc). The Commission is not acting alone, however. It receives instructions and reports to the Council of the European Union. It also informs the European Parliament about the progress. The EU is Georgia's first trade partner In 2011, the EU's share in Georgia's international trade represented 26 %, followed by Turkey (16 %) and Azerbaijan (10 %). Total trade in goods with the EU amounted to 2.19 billion in 2011, the highest ever figure in terms of total trade value. EU trade with Georgia increased by 27% compared with 2010. That said, growth of EU exports to Georgia has been much higher (37%) than of imports from Georgia (8%), confirming the trend from 2010. Georgia imports from the EU machinery and transport equipment, chemicals, fuels and mining products; while Georgia exports cover mostly fuels and mining products, some chemical and agricultural products. EU trade turnover with Georgia 2.500 +27% 2.000 Mil EUR. 1.500 1.000 500 0 2007 2008 2009 2010 2011 source Eurostat

8 N O V E M B E R 2 0 1 2 E U G E O R G I A T R A D E I N s I G H T Out now: a DCFTA impact study foresees a 12% exports growth and 4.3% GDP increase A trade and sustainability impact assessment study, carried out by a consortium of Ecorys (Netherlands) and CAsE (Poland and Georgia), has assessed the short and long-term effect of DCFTA on Georgia. The final report has just been released. It confirms that, in the long run, Georgia's exports to the EU are expected to grow by 12% and imports by 7.5%. In the long run and if Georgia conducts prescribed policy reforms, its GDP is expected to grow by 4.3%. such studies are an integral part of EU policy-making. Before launching these negotiations the EU commissioned first an independent feasibility study to get advice on the most beneficiary type of future trade relationship between EU and Georgia. At the same time as launching the negotiations, the European Commission further consulted independent experts, based on newer data, on expected gains and impact of DCFTA on EU and Georgia, This 'trade and sustainable impact assessment', running in parallel to DCFTA negotiations helps adjust the policy and supports the negotiations by indicating areas which require particular attention. In particular it helps to integrate sustainability aspects of trade into trade policy, such as the economic, social, human rights and environmental impacts of a Free Trade Agreement. This study has now been completed and can be accessed here. Below you can also consult our Trade Calendar for EU Delegation events related to this study. Upcoming Trade Events 21 November - "Expected impact of the EU-Georgia Deep and Comprehensive Free Trade Area (DCFTA)" workshop organised by the EU Delegation. The Ecorys and CASE consortium will present the final report of the trade and sustainable impact assessment of the EU-Georgia DCFTA (tbc). 26-30 November the 4th round of DCFTA negotiations to take place in Brussels. 4 December - "EU-Georgia trade relations: how to export to the European Union" workshop organised by the EU Delegation and the EU-Georgia Business Council (EUBGC). New brochures developed by EUBCG will be presented on this occasion. For more details regarding these events please contact Ms Virginie Cossoul, (virginie.cossoul@eeas.europa.eu)