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Monday, August 27, 2012

Russia’s Accession to WTO May Result in Lifting of Embargo on Georgian Products

Photo: Martial Trezzini/Keystone/Associated Press
by Nana Mghebrishvili

27.08.2012. Russia has at last entered the World Trade Organization (WTO) after 19 years of stop-start negotiations as it was the last big economy outside the global trade body. As a result Russia has no right to have an unequal trade relationship with any member country including Georgia. Therefore experts now expect Russia to lift the embargo on Georgian products in the ensuing months.

“Lifting the ban is a political decision,” said Amiran Kavadze, expert and former Permanent Representative of Georgia to the UN Office and Other International Organizations at Geneva, Ambassador. “But now Russia has no other option but to liberalize trade with WTO member countries. The embargo is undeniably in breach of WTO norms and regulations. Now Russia’s foreign trade is regulated with strict rules and the Russian Federation has to apply the MFN (GATT) principle with Georgia. If not, we can officially appeal against it through the Dispute Settlement Body of WTO. Sanctions will be quite sensitive for Russia.”

The import of Georgian wine and Borjomi mineral water in Russia were banned in 2006. Later other products including fruit and vegetables were banned as well. The Georgian Government said it was the political decision of the Kremlin aimed at harming the fast developing Georgian economy.

“If the embargo is lifted, GDP will definitely be additionally growing by 3-4 percent in Georgia,” Kavadze explained. “The Russian market is essential for us as it is quite a big neighbour market. Russians still miss Georgian wine products and mineral water and transportation fees are quite low.”

Georgia was the last WTO member country that finished the bilateral market access negotiations with Russia. The topic of the negotiations was the WTO-compliant functioning of two illegal checkpoints at the Georgian-Russian state border. Obviously, the ideal solution for Georgia was to be the deployment of Georgian customs officers at checkpoints at the Roki tunnel (South Ossetia) and Gantiadi-Vesioloe (Abkhazia). But Georgian officials remained flexible on this issue during the negotiations. Monitoring the trade in Abkhazia and Ossetia was the main focus for Georgia.

“Switzerland helped us in the final negotiations with Russia,” Kavadze stated. “According to the final decision we designed so-called trade corridors in Abkhazia and Ossetia and located international monitors at the customs checkpoints on both sides of the corridors. Independent experts will observe the situation there and deliver reports to the WTO. The situation will be under control and totally transparent.”

“Both sides, Georgia and Russia, claimed this decision as their great victory. Georgia claims that we have fixed our border at the River Psou. On the other hand, Russia says that Georgia has recognized the independence of Abkhazia and Ossetia by the concluding of this agreement. In my opinion this is a win-win situation where both sides enjoyed the positive results of the decision.”

This will be a really big benefit for Russia. World Bank economists estimate a boon for Russia’s economy of USD 49 billion a year. Russia could benefit to the tune of 3.3 percent of GDP annually in the medium term and by 11 percent annually in the long term, as the investment climate improves. But those sorts of gains will materialize only if Russia fulfils its reform commitments. Russia is expected to reduce import tariffs from an average 11.5 percent to 7 percent. Falling import tariffs are expected to expose the federation’s economy to more competition, boosting efficiency across the board.

Total import of Russia amounted to 325 billion USD in 2011, while export totalled 520 billion USD. The biggest part, 50 percent of import, is made up of machinery and equipment. Other big import products are chemicals with 15 percent and food and agriculture with 14 percent. Mineral products are the biggest export sector for Russia with almost percent of total export. Metals (9 percent) and chemicals (6 percent) are big export products as well.

Georgia became the WTO’s fully-fledged 137th member on 14 June, 2000.

“The accession process was largely concerned with putting new laws and regulations compatible with the WTO norms and principles in place, “Kavadze said. “Thus making the business environment more attractive, predictable and secure for foreign companies and investors. Since this the EU has started expanding its economic and trading ties with Georgia.”

Currently Georgia has an MFN (most favoured nation) trading relationship with all WTO members and has GSP arrangements with the EU, Japan, Canada, Norway, the US and Switzerland. Georgia has a free-trade regime with the members of the CIS (except Russia). The current average applied MFN tariff is 1.5 percent, down from 7.2 percent in 2005, making it one of the lowest worldwide.

External Trade of Georgia amounted to USD 5,761 million in January-July 2012, up 18 percent from the same period of the previous year. Compared to January-July 2011, the volume of export grew by 14 percent and reached USD 1,352 million, while import increased by 19 percent amounting to USD 4,409 million. The trade deficit reached USD 3,057 million and amounted to 53 percent of the total trade turnover.

Georgia is expecting increased foreign trade now thanks to Russia’s recent accession to the WTO.

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