Wednesday, August 24, 2016

Caucasus Report

Russia Hits Back At Georgia Over Trade Agreement With European Union

Former Georgian ambassador to Moscow Zurab Abashidze (right) and Russian deputy Foreign Minister Grigori Karasin have held a series of meetings on relations between the two countries. (file photo)
Former Georgian ambassador to Moscow Zurab Abashidze (right) and Russian deputy Foreign Minister Grigori Karasin have held a series of meetings on relations between the two countries. (file photo)

Just three weeks after down-playing the anticipated impact on bilateral relations of Georgia's Deep and Comprehensive Free Trade Agreement (DCFTA) with the European Union, Russia is moving to suspend the Free Trade Agreement it signed with Georgia two decades ago. Senior Georgian officials in turn are now seeking to assure the population that the Russian move does not constitute "a tragedy."

Georgia signed the DCFTA on June 27 as part of its Association Agreement with the EU, which Prime Minister Irakli Gharibashvili described as "a big step towards free Europe."  

The Georgian parliament unanimously ratified the Agreement on July 18. The DCFTA takes effect on September 1. An EU study estimated that it will increase Georgian exports to the European Union by 12 percent.

Meanwhile, Russian and Georgian experts met in Prague on July 7 to discuss the anticipated impact of the DCFTA on bilateral trade, which had grown by 35 percent during the first five months of this year.  

Two days later, on July 9, Russian Deputy Foreign Minister Grigory Karasin and Georgia's special representative for talks with Moscow, former Ambassador Zurab Abashidze, met, also in Prague on July 9 for the seventh time since relaunching an "informal dialogue" in late 2012 in the wake of the parliamentary election in which then President Mikheil Saakashvili's United National Movement was defeated by the more pragmatic and less overtly anti-Russian Georgian Dream coalition headed by philanthropist and businessman Bidzina Ivanishvili.

Both sides described the two separate meetings as "productive" and "useful." Karasin was quoted as stressing that "concrete and open dialogue is needed about how [the DCFTA] will impact our bilateral trade."

At the same time, he affirmed that "I think that there is no need to threaten neither ourselves nor partners in advance with measures and sanctions; what is needed is to sit down calmly in mutual respect and thoroughly calculate in which areas and to what extent changes may occur in trade and economic ties between our countries following the recent signature by Georgia of the Association Agreement with the EU."

Notwithstanding Karasin's assurances, Russia's Ministry for Economic Development has drafted, without any prior consultations with Tbilisi, a decree on suspending the Russian-Georgian Free-Trade Agreement signed in February 1994. 

Abashidze reportedly told Georgia's Maestro TV that there is "a political element" in the Russian move. "Our take has always been that free trade with the EU does not in any way hinder our free trade with Russia, but they [the Russian authorities] as it seems think otherwise," he said. 

Abashidze explained that the suspension of the free-trade agreement with Russia will probably make Georgian exports to the Russian Federation more expensive and thus less competitive on the Russian market. In addition, he said, some tariffs will increase and others will be revised. 

Georgian Deputy Economy Minister Mikhail Djanelidze said Georgian imports to Russia would be subject to customs tariffs, but at a rate not exceeding 20 percent. 

Finance Minister Nodar Khaduri, however, told journalists on August 1 that he does not anticipate either a rise in the price of Georgian products on the Russian market or a fall in exports. 

On the contrary, Khaduri said, suspension of the free-trade agreement with Russia means that Russian imports will henceforth be subject to customs duty, which will bring in some 15-20 million laris ($8.6 -- $11.5 million) annually to the state budget. 

Like Abashidze, Georgian Prime Minister Gharibashvili said the suspension of the free-trade agreement with Russia "is not a tragedy." He said Abashidze will hold further talks with the Russian side, "and I think we shall reach an agreement." 

Whatever the impact on Georgia's economy, the planned suspension of the 1994 free-trade agreement raises the question whether individual Russian agencies or interest groups are again pursuing separate, even diverging policies with regard to Georgia, as this writer posited in 1994 (see "Russian Strategy in the Transcaucasus since the Demise of the U.S.S.R.,"  Bundesinstitut fuer ostwissenschaftliche und internationale Studien, Cologne, ISIN 0435-7183)

-- Liz Fuller

This forum has been closed.
Comment Sorting
by: Konstantin from: Los Angeles
August 02, 2014 23:53
Nobody understands in the West, how Russia makes decisions.
British used to say "Britain has no friends, only interests".
Russia must say "Russia never had friends (only lied
to their victims, luring them as would-be friends),
but special interest - despotize Russian serfs,
betray non-Russian nations - repopulate.

Indeed, if Russia trade with anybody and
usually steal too, why Georgia or Ukraine
cannot trade with mutual benefits with EU,
CIS and Russia? How spiteful and hateful,
just seeing other nations can live in dignity,
Rus-"Pleshivyiy Stervyatnik" is going to be?
Why Karasin is so happy, hooked "karasik",
puled from water of mutual benefit in trade?
Nikolos the Third echoed Russians when CIS
Became independent “Great Russia saved all,
Now we'll push you to Turkey, they will get you!”

by: Mamuka
August 04, 2014 12:09
The Georgian Dream (much like Barack Obama) is finding that a "reset with Russia" is not so simple as it might seem. The next step could be additional pressure on any Georgian nationals still working in Russia or do business there.

What kind of Russian imports make their way to Georgia anymore? I think the imposition of tariffs will hurt Georgian goods more than it will raise income on the tax of Russian goods sold in Georgia.

Hopefully the GD is making the Georgian business environment more open and competitive and the economy will be able to overcome this crude move from Moscow.

by: Zhu Lung from: Taiwan
August 04, 2014 23:17
If the economic sanction can be a weapon in the West, why not be a pair of gloves of Russian boxer?
In Response

by: Regular Joe from: USA
August 05, 2014 21:21
Point taken, but the context is completely different. Western economic sanctions against Russia are punitive measures for Russia blatantly and illegally violating the sovereignty of Ukraine and fostering civil war there. Russia is simply trying to bully a smaller country into not pursuing its own economic interests by trading with Europe. In context, this is a move of desperation by Russia. Moscow knows it must strike at Georgia immediately because if they wait until Georgian-European trade starts to flow fully under the terms of the association agreement, they will have much less chance to hurt Georgia economically. As is, if Georgia can survive the short-term damage to its export revenues, Russia is just pushing Georgia (and Moldova) further into the arms of Europe.

by: Bill Webb from: Phoenix, Arizona, USA
August 21, 2014 18:45
Merkel and Putin, who both speak Russian, German and trade are in negotiations with Lukashenka and Poroschenko now. She may be all our best ally to nail down the negotiations over Ukraine, Georgia, the EU, NATO and who knows what else. Good luck to you all :-)

About This Blog

This blog presents analyst Liz Fuller's personal take on events in the region, following on from her work in the "RFE/RL Caucasus Report." It also aims, to borrow a metaphor from Tom de Waal, to act as a smoke detector, focusing attention on potential conflict situations and crises throughout the region. The views are the author's own and do not represent those of RFE/RL.