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.
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).
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