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Costs and Benefits of DCFTA: The case of Georgia

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Costs and benefits for Georgia after DCFTA negotiations: The presentation shows also recommendations for a successful approach with DCFTA negotiations with the EU. Tamara Kovziridze managed the Georgian team during the EU-Georgia DCFTA negotiations. She is co-founder, director and partner at Reformatics.

Further information:
Stakeholder Dialogue in Cooperation with the AHK Tunisia - Negotiating ALECA – Lessons Learned from the DCFTAs with Ukraine, Moldova and Georgia.
Organizer: Bertelsmann-Stiftung in Cooperation with the AHK Tunisia
Date: Wednesday, 27-28 June 2018.

Publicado en: Economía y finanzas
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Costs and Benefits of DCFTA: The case of Georgia

  1. 1. Creating Your Successful Legacy CONFIDENTIAL AND PROPRIETARY. Any use of this material without specific permission of Reformatics LLC is strictly prohibited. Costs and Benefits of DCFTA: The case of Georgia Tamara Kovziridze Partner and Senior Director, Reformatics Chief Negotiator of DCFTA 2009-2012 June, 2018
  2. 2. 2 Contents Costs and benefits of DCFTA DCFTA Negotiating structure Recommendations for negotiations www.reformatics.com Georgia’s DCFTA with the EU
  3. 3. 3 Our Partners: Afghanistan Albania Bhutan Botswana Colombia Cote D’Ivoire Djibouti Hungary Kazakhstan Kenya Kyrgyzstan Macedonia Moldova Nigeria Philippines Qatar Saudi Arabia Senegal South Africa Sri Lanka Tajikistan Uzbekistan Reformatics’ consultancy engagements in 2012 - 2018  Reformatics is a new generation boutique advisory company, bringing together practitioners and assisting clients not only to draft reform agendas, but also to successfully implement and communicate them to public.  Reformatics brings together former Ministers, Deputy Ministers, Heads of Agencies and is led by the Former Prime Minister of Georgia – Mr. Nika Gilauri
  4. 4. 4 Contents Costs and benefits of DCFTA About Reformatics Negotiating structure Recommendations for negotiations www.reformatics.com Georgia’s DCFTA with the EU
  5. 5. Screen Shot 2017-04-20 at 8.35.38 PM 5 Distinctive features of EU-Georgia DCFTA  EU-Georgia DCFTA is the most liberal one: the only DCFTA, which embarks on full tariff liberalization, has no transition periods and Tariff Rate Quotas (TRQs).  Such an approach was offered by Georgia to the EU and the EU reciprocated it will identical approach. 1 Creating Your Successful Legacy Full Tariff Liberalization  As a result of a deliberate approach by Georgia, if compared with Ukraine and Moldova, Georgia has least obligations in terms of legislative approximation (Georgia: 291, Ukraine: 339, Moldova: 386). 2 Reasonable Regulatory Obligations  When embarking on DCFTA negotiations, Georgia’s trade and economic regulation was widely liberalized and de-corrupted: thus the challenge was to combine Georgian and EU regulatory approaches. 3 Combining Liberal Approach and DCFTA Obligations
  6. 6. 6 Contents Costs and benefits of DCFTA About Reformatics Negotiating structure Recommendations for negotiations www.reformatics.com Georgia’s DCFTA with the EU
  7. 7. Screen Shot 2017-04-20 at 8.35.38 PM 7 Costs and benefits of DCFTA Creating Your Successful Legacy Benefits Costs The DCFTA opens access to a 500 million market, which increases trade volume with EU in long term 1 Positive influence on country image as a market close to the EU 2 Possibility of diagonal cumulation between DCFTA states (PEM Convention) 3 Attractiveness and confidence booster for international investor community 4 5 Possibility to create economic/investment hub: invest, process, export 6 Attracts other countries to sign FTAs with the prospect of producing in Georgia and exporting to the EU 7 Complex business regulation developed for a 500 ml. market is challenging to be absorbed by a transition economy 1 Loss of comparative advantage through legislative approximation of major trade and economic regulation – risk of loosing itს distinct feature as a de-regulated and de-corrupted economy. 2 Compliance cost for business as well as the state in the short- to medium-term: new rules and institutions 3 Negative side-effects if and when the Government uses DCFTA as a tool for its internal political agenda and promotes certain policies justifying them through (non-existing) DCFTA obligations 4 Has a positive political relevance, reinforces Georgia’s EU aspirations
  8. 8. Screen Shot 2017-04-20 at 8.35.38 PM 8 Benefits of DCFTA: Further broader trade liberalization Creating Your Successful Legacy Invest Process Export Georgia’s Free Trade Areas Access to 2 200 000 000 + market Georgia’s Free Trade Areas Georgia’s potential Free Trade Areas CIS Turkey EU China EFTA Hong-Kong India Israel Before DCFTA After DCFTA Negotiation inprocess
  9. 9. Screen Shot 2017-04-20 at 8.35.38 PM 9Creating Your Successful Legacy  The European Union has been the largest trade partner of Georgia even before the DCFTA was signed.  In the last ten years, average trade share with the EU was 27%, while average export share was 22%.  As the Chart shows, this year (2018 1Q) share of trade with the EU has increased, however there is not yet a stable trend of increase since DCFTA.  Since 2014, the share of the Rest of the World (RoW) in export has significantly increased, mainly due to Chinese factor (130% growth of exports to China). Assessment of the first results of DCFTA (1/2) EU 22% CIS 51% RoW 27% EU 29% CIS 38% RoW 33% EU 27% CIS 35% RoW 38% EU 19% CIS 36% RoW 45% 2014 2015 2016 2017 Source: Geostat Georgia’s export share after DCFTA by country groups EU 22% CIS 32% RoW 46% 2018, 1Q
  10. 10. Screen Shot 2017-04-20 at 8.35.38 PM 10Creating Your Successful Legacy Source: Geostat Georgia’s trade volume by country groups, million USD Assessment of the first results of DCFTA (2/2)  Since the entry into force of the DCFTA in September 2014, export to EU has slightly increased - by 3% from 2014 to 2017 .  Despite the increase of exports, no visible change in the structure of Georgia’s export to the EU can yet be seen.  Trade between the EU and Georgia was increasing more rapidly in the four years before the DCFTA (2010-2013) than in the four years after its application (2014-2017).  DCFTA does not bring a quick impact, however it is oriented towards long- term results.  DCFTA should be accompanied by business environment reforms to increase investment attraction and make business and trade activity easier. Georgia’s export volume by country groups, million USD 30% 37% -17% 72% 3% 3% -11% 13% 0 500 1000 1500 2000 2010 2011 2012 2013 2014 2015 2016 2017 EU CIS Rest of the World DCFTA Period DCFTA Period 13% 39% 12% 3% 4% -9% 2% 2% 0 1000 2000 3000 4000 5000 6000 2010 2011 2012 2013 2014 2015 2016 2017 EU CIS Rest of the World Source: Geostat
  11. 11. 11 Contents Costs and benefits of DCFTA About Reformatics Negotiating structure Recommendations for negotiations www.reformatics.com Georgia’s DCFTA with the EU
  12. 12. Screen Shot 2017-04-20 at 8.35.38 PM 12 DCFTA negotiations structure Creating Your Successful Legacy Government of Georgia European Integration Commission Chaired by the PM of Georgia DCFTA Chief Negotiator DCFTA Coordination Unit at the PM’s Office Interagency Thematic Working Groups Working Meetings - Makes strategic decision on DCFTA. - Discusses relevant EU matters, agrees positions and makes decisions before submitting proposals to the Government of Georgia, Parliament of Georgia and the EU. - Members are Ministers, Heads of Agencies and Departments. - Chief Negotiator is at the same time chief advisor to the PM and has regular contact and access to him. - Chief Negotiator supervises DCFTA coordination unit under the PM. - Small and efficient DCFTA coordination unit functions as a delivery unit. - It coordinates not only the process of negotiations, but also works on the content and acts as the main liaison between the PM’s Office and relevant Ministries and Agencies. - Coordination by the PM’s office is more efficient, as DCFTA requires various actions/decisions from different Ministries and Agencies. - DCFTA Coordination Unit includs experts for each field of DCFTA, whereby one expert coordinated 2 or 3 thematic areas. - Interagency thematic working groups were created in key areas, such as SPS, competition policy, TBT, etc. - Thematic working groups prepared dossiers for the EU Integration Commission and the Government - Regular working meetings to discuss policies, drat legislation and negotiating positions. ChiefNegotiatorreportstoboth–The GovernmentandtheCommission
  13. 13. Screen Shot 2017-04-20 at 8.35.38 PM 13 Georgia’s approach to DCFTA negotiations Creating Your Successful Legacy Detailed analysis and scrutiny of EU regulations and their suitability for Georgia Detailed study of member state experience to find cases/precedents of legislative approximation appropriate to Georgia No copy-paste of EU regulations (Unlike some countries) Negotiation of long approximation (transition) periods where possible (up to ten years)
  14. 14. 14 Contents Costs and benefits of DCFTA About Reformatics Negotiating structure Recommendations for negotiations www.reformatics.com Georgia’s DCFTA with the EU
  15. 15. Screen Shot 2017-04-20 at 8.35.38 PM 15 Recommendations for DCFTA negotiations  The DCFTA should serve the broader goal of the country’s economic development and not be the goal in itself. 1 Creating Your Successful Legacy  The DCFTA has the potential to yield positive results only if and when coupled with sound economic and regulatory policies. 2  It is recommended to strongly take into account local development challenges and specificities when implementing DCFTA obligations. 3  It is essential not to over perform when fulfilling the obligations and not to use the latter to serve the government’s own political agenda. 4  The DCFTA implementation process should be accompanied by an intensive dialogue between the government and business community. 5  It is recommended to look at regulatory reforms from business’s point of view.6  The DCFTA implementation process requires a champion within the government, i.e. a responsible person or agency that guides the process politically besides having the technical expertise. 7
  16. 16. Screen Shot 2017-04-20 at 8.35.38 PM 16 Example of regulatory solutions suited to local context: Food safety Creating Your Successful Legacy  Food safety area is most challenging for Georgia as agricultural sector has a strong social exposure and is therefore sensitive.  Least regulated at the start of DCFTA process as Georgia abolished excessive regulation in the context of institutional streamlining and fight against corruption.  Thus major legal and institutional pillars needed to be (re)created in order to embark on the DCFTA process.  Except for few products such as wines, waters and juices, and nuts, limited potential in the short run to substantially diversify agricultural export to the EU. Therefore, excessive and quick approximation risks to result in high cost and limited benefit.  Thus Georgia’s approach: • Gradual and careful legislative approximation • Maximum use of possible derogation where appropriate: e.g. simplified requirements for a) small food producers, b) traditional production and c) geographically constrained areas • Long implementation periods • Involvement of private control bodies to encourage private sector development, e.g. private inspection bodies accredited by the state legally possible.
  17. 17. Creating Your Successful Legacy CONFIDENTIAL AND PROPRIETARY. Any use of this material without specific permission of Reformatics LLC is strictly prohibited. Thank you! Contact us: www.reformatics.com www.3dcftas.eu

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