WHO AND WHAT MAKES PROBLEMS FOR GEORGIAN EXPORT

FROM THE REDACTION

Non-governmental organization “The Institute of Free Economy and Business” and “Sakartvelos Ekonomika” magazine, together with the Chamber of Commerce, are implementing a project the purpose of which is to help Georgia not to shame itself from the viewpoint of economy’s regulation.

The country has a chance of becoming a subject of serious attention, both from the viewpoint of investors or in other aspects. Chaos or a regulation that cannot be implemented mist not be created because of good ideas of deregulation.
One of directions of deregulation is the problems of standardization, certification and metrology control. Here presented are laboratories, that is specialists, that carry out measurements of practically everything, and also render assistance in packing so that an entrepreneur could protect customers’ interests, supply them with worthy goods, and gain a foothold and not shame itself on the European market. The country faces serious export problems and has one billion and a hundred million GEL trade deficit. Here we present “Norma” laboratory that has a solid reputation in Georgia. Let us speak about what is a laboratory, what kind problems it faces in Georgia, how they work today and how they should work.

Giorgi Manjgaladze: – “Norma”, as an organization, was established in 1993. Then it underwent strategic changes, and in 1997 it was turned into a limited liability company. Now its work concerns safety and quality checks of products on the consumer market. At the same time one of its main functions is certification and works related to it. Certification and checks of products are different things, but in this case they are interrelated, since we come to certification by means of safety and quality checks of products. That is why it is one of the main aspects of our work. Proceeding from this, the main directions of our activity is quality checks of products and determination of their safety indicators, as well as certification and activities related to it.
In fact, the matter concerns food products and our work includes this aspect. This concerns !1 compliance certificate that “Norma” issued in 1996 when the “Law on compliance certificate” was not adopted by the president yet.
– What particular norms of products did you protect and how do you switch to other norms?
G.M. – Soviet time standard acts are still effective in Georgia, and now so called internal regulation standards were created in the CIS space that work in our country along with the national standards. Our laboratory checks whether these products comply with these standards. Then materials are handed over to the certificate issuing body where experts carry out examination, identification and issue a certificate. The main thing is to take samples correctly. Otherwise the whole work will be useless. So, much attention is paid to correct taking of samples. In our system there are experts that deal with food products, tobacco goods, perfumery, etc.
– Do you have a certificate and what kind of certificate it is?
G.M. – We have an international certificate that complies with ISO 90001 standard. Series ISO 9000 and standard 90001 is singled out in it, for the compliance with which a certificate will be issued in future.
– What does it mean?
>G.M. – It means that the system of management approved in the world is inculcated in our system, which provides for compliance of products so that they should not have any faults. Generally, a laboratory starts with metrology, the existing instruments should be arranged from metrological point of view. Let us consider this issue in two aspects, the first one is internal metrological checks, I have employees that control metrological provision of instruments. Some instruments need calibration for carrying out each examination.
Do we have a standard in Georgia, and what do we call examination?
G.M. – If the matter concerns the standards of frequency, size and weight, they should be a prerogative of the state and should be protected here. They can be handed over to private structures, but they should be controlled by the state structure.
– Experts have the following claim. It is true that the laboratories have received ISO 90001 standard, but, let us say, I imported equipment 3 years ago and it was calibrated a year ago, though its permanent correction does not take place and that is why there are some errors. How do you manage to carry out checks without defects and deviations?
G.M. – This kind of calibration is based on standard reagents, that is solutions that provide for accuracy of measurement, and not its technically adjusted work. Technically adjusted work of these instruments is provided by the entrepreneurs that give us this equipment. For example, if a TV set works normally but shows badly it is frequency’s fault and that is why we receive a wrong picture. If the frequency is corrected, we shall receive a correct picture. In our instance the same takes place, when we speak about chromatograph we just carry out its calibration, later on its records will absolutely coincide with the records of the admissible standard solution. But if it does not, it is regulated by the corresponding regulators to level that provides for observing of parameters.
– In view of the fact that there is no institute of metrology as the state metrological center, we took samples to Moscow and St. Petersburg, but comparison should take place constantly and any laboratory should do it. Proceeding from this, it is useless to speak about anything if we do not solve the issue of metrology. The question is as follows: whether we should carry out comparisons in St. Petersburg and Turkey or should we set up our own metrological center? Whatever laws we may pass, if the country does not solve the issue related to metrology, there will be no sense in carrying out of the reforms. Is it really so?
Jemal Manjgaladze:
– Even if we had a standard unit, once in two years, and in some cases once in five years, comparisons with the standards existing in other countries should be made. This is the main principle of metrology. That is why the equipment was taken from our country to Moscow and St. Petersburg. Now as to what a primary standard is. Laboratories that draw up check acts do not need the standard base which the state must have. That is why there is the system that determines what the state should have and what a laboratory may have. The state should have primary standards or most accurate instruments that determine exact work of some working standard. The working standard is more subordinated to the primary standard than the equipment whose accuracy is lesser than that of the primary standard. The working standard gives an opportunity to carry out accuracy measurement of various equipment in laboratories represented in different accreditation spheres. Any equipment is followed by the standard that is of comparatively lower quality in comparison to it that is used in day-to-day work, that is it will be compared with the working standard, and further determination of its work takes place by means of this laboratory standard. All firms producing the equipments should fit it out themselves. Each laboratory should have the working standard. In accreditation conditions the work should be carried out by means of the working standard, but when quality is established chemical elements should be tested, that is qualitative and quantitative indicators should be established. This does not refer to the standard source, it is established by means of chemical analysis. This part is protected in our country. There is no country that has equipment and has no possibilities of establishing accuracy of the examination’s result.
– Will you have any problems in view of the fact that the issue of metrology in our country is in the air?
J.M. – It is not in the air in this respect. We should differentiate the essence of the state standard, its absence and availability of the working standard that we have. The state basically needs 25-30 standards that come under equipment’s control.
– Do we have the state standard?
J.M. – Yes, we do. We have two primary standards. And during the soviet period there were two basic standards in Georgia – conductometry and ph-metry ones. They are kept in the specially built Institute of Metrology being designed for seismic resistance. We do not have an opportunity of comparing of the state standard. If we had 650-750 thousand USD we could establish 16 standards.
– On what did Turkey spend 130 million USD?
J.M. – On laboratories, metrology, testing of various equipment. A motor-car has five basic indicator of safety – brake system, wheel and its work, exhaust system, engine’s work, lighting system… If it is unfit for our conditions, then we should place an order for it to be made in a special way since we do not have such conditions as abroad. Taking over of foreign qualities and definitions is inadmissible since we do not have the ability of controlling them. Let us say that we deal with a disreputable entrepreneur. Let us draw a meter as an example. In England I was shown a system with corresponding equipment that had its control system, by the way ISO 9000. Let us suppose that it was good and we accepted it without any talk, but it should be tested after transportation. It turned out that a similar firm produced meters in Indonesia as well, and we were not given an opportunity of accrediting it since there was a war and a strained situation there. But at that period meters were imported to Georgia and establishment of their parameters took place in “Telasi”, private systems and “Sakstandard”.
– It was said that when the Kazakhs sign the contract on purchasing of “Tbilgas” they will spend 40 million USD on buying of so called gold meters that are produced in France.
J.M. – These are “Shlumberzhe” meters that are produced in France. It is being done in order to avoid the possibility of readings’ forging. The system with this kind of equipment was for the first time installed in Marcel but it did not justify itself. The one that should be introduced now is produced by “Elster” company and is accepted in the whole of Europe. This company is a world brand, and we shall not buy anything better. Unfortunately, meters produced in China were imported and they are a bad modification of “Shlumberzhe” meters. It is enough to move the meter sideways in order to stop it. So, “Sakstandard’s” specialists have worked out a method for a meter’s installation. Unfortunately, “Tbilgas” did not accept this method and, as a result, we have huge losses of gas.
– How is the laboratory’s work concretely impeded?
G.M. – The matter concerns interlaboratory issues. When laboratories work on a concrete market, it is necessary that interlaboratory checks should take place. An organization, a body or metrological center that will carry out checks should exist. Its confidentiality, qualification of the laboratory’s personnel as well as debugged work of metrological means should be checked. The same approach has been approved all over the world.
– How many laboratories work in Georgia?
G.M. – Probably a lot. About 56.
– Is your laboratory recognized in Europe or not?
G.M. – No, it is not. We do not have ISO17025 accreditation. This is an international standard by means of which accreditation of laboratories takes place.
– Who makes it?
G.M. – In Georgia the system of accreditation was formed as an independent system, it must be integrated into the international system.
There are two European systems of accreditation, in America there is one system – the national accreditation body should be integrated into the international organization, while specialists working in the accreditation system should go through attestation in the international system so that they should have the right to carry out attestation by ISO 17025 in the corresponding bodies. Experts work in my laboratory, but someone should confer this status to them.
– How long will it take for a newly established body to go the whole of this way?
G.M. – If I am not mistaken, many bodies are members of the international system.
Shalva Melikidze:
– If we consider the issue from the viewpoint of the present moment, probably it will take 10 years.
J.M. – They do not have experts that should carry out accreditation of laboratories and bodies. First they should receive the status of an expert.
– Should the state allocate money or not?
J.M. – Of course, it should.
– When I listen to you it seems to me that everything is all right. However, the state should train professionals, confer the status of an expert, otherwise our goods will not get on the European market. A document issued by you is useless in Europe. Georgia is a member of WTO and they say on TV and in the press that the way to Europe is open. A want you to give me a certificate with which I would be able to go for instance to Munich.
Sh.M. – If for the period of eight months accreditation only managed to adopt the regulations, we should think that its normative base is not prepared.
– A laboratory should demand the state support. The Minister of Economy should have a plan of work, and what we need must be written in the 2006 budget. A plan should be included in the 2007 program that will promote laboratories and, correspondingly, export.
G.M. – As to Europe, as you are speaking, the problems really exist, and the leaders of accreditation should think about it. As far as the CIS is concerned, here the systems that were inculcated during the soviet period still work. This is the system of compliance certification based on which regulations were adopted and procedures were determined as to how compliance certification should be carried out and how their mutual acknowledgement should take place. However, this works on the CIS market.
Sh.M. – There are even contradictions between the CIS market and our market. Georgian tangerines were not exported to Ukraine since they did not accept the compliance certificate.
J.M. – Because they consider phytosanitary as compliance certification, while abroad compliance certification is not considered as phytosanitary.
G.M. – Generally speaking, phytosanitary certification and veterinary certification are a remnant which does not exists in any country of the world, except for the CIS.
– Then our government was right when it abolished it.
J.M. – But control must not be abolished.
G.M. – Drawing of conclusions is a prerogative of the state. If there is suspicion that products that are imported to the country is contaminated or there is well-grounded suspicion concerning its negative characteristics, then implementation of control measures with involvement of controlling bodies is possible.
– Now the customs announce a competition and employ physicians and veterinarians, which is switching from one absurd to another. Is there a total phyto and veterinary control in any country of the world? The customs should not take everything upon itself, there is an accredited laboratory that you should involve in case of necessity and pay money to it. I want to say that there is no accreditation system in our country.
G.M. – Let us say that it is in the process of formation.
I would not say that. Russia closed the market for me and there is no other alternative. It closed the wine market as well.
G.M. – It has already closed it. Russia stopped to issue excise marks, and you cannot export anything to Russia without it. Export of wine to the Russian market was made by the old excise marks. This is a direct economic blockade.
– This means that accreditation system was not created and we are unable to introduce ISO 17025. While the Ministry of Economy does not have any plan as to what must be done for normal accreditation.
G.M. – Yes, it is so, and I am impeded as a laboratory’s owner because of this situation. Here the matter concerns not only me as an entrepreneur. The point is that the one, that is an entrepreneur, to whom I render my services, is impeded. In the final analysis, Georgian economy suffers losses.
– How do you fancy the development of export and business without ISO 17025?
G.M. – I shall openly say that it is impossible.
– It turns out that the Ministry of Economy has buried export production.
G.M. – I can get accreditation in Europe.
– Why don’t you do it?
G.M. – Because this pleasure will cost me dear. About 50-60 thousand Euro. My services will rise in price because of it too. However, there is no such market in Georgia so that they should pay me correspondingly and I shall face bankruptcy if I do it. Today getting of accreditation in Europe is economically unjustified for me.
– Then the state should allocate 200-300 thousand USD so that several laboratories could get accreditation.
G.M. – This is a favorable way. If they wanted to export Georgian wine to Europe, the Ministry of Agriculture would make them notify two laboratories in which, to put it mildly, work is carried out very slowly. The notification system has made conditions for them.
– What other problems are there?
G.M. – The main problem is putting in order of the system. The system should be adjusted. Metrological provision and making of laboratory comparisons should not be a problem, as well as the system of accreditation, the system of accreditation control of the domestic market, and control of the rights that I will be conferred by means of accreditation. If there is no control, there will be unhealthy competition on my market, since I will not be able withstand competition with unfair laboratory, that will issue its conclusion without examination.
– Has the “Law on harmlessness and quality of food products” facilitated your work and how?
G.M. – In fact, nothing has happened.
This is the only law that told the players on the Georgian market that the interests of consumers should be protected.
G.M. – That is right. If there is no control, everything becomes senseless. The first step was taken with passing of this law. It is very good that there is a system of mechanisms that will implement it, but how it will be done it is already a different matter. I, as a laboratory owner, will have more work because of this law, since checking of products should take place in the accredited laboratories only, that is, a controller should take samples and bring them to an accredited laboratory, and the controller will react in accordance with its conclusion. It is good for me, but there is another issue – conscientiousness. If no one pays attention to it and a controller works in one direction cooperating with one laboratory only, then there will be problems.
– Do you, as a businessman, have any legislative remarks?
G.M. – I think a number of mistakes have been made from the viewpoint of certification. The matter concerns the system of compliance appraisal. It basically envisages two aspects – declaration and certification. Declaration of products is made by several patterns, in particular there are 14 patterns for it in the world, and not a single of them works in Georgia. People involved in certification should be a third party. Only three patterns determine declaration of an entrepreneur, an entrepreneur bears responsibility for the data given in the declaration. In this case there must be a controlling system that will determine qualitative and safety indicator of the product. Exact and correct formation of supply system on the market of supply is necessary, in which the systems of supply, sale, distribution, storage, etc. are envisaged. If there are no such systems there can be no talk of submission of a declaration by an entrepreneur. Now in Georgia only these three patterns work and at the customs at that, from which products get to the market. There are no supply and control systems. When products are imported they should be accompanied by at least some laboratory examination results from the supplying country. Nothing of this kind is done in Georgia and no one will convince me of the opposite.
– What does automatic recognition by the OECD countries mean?
G.M. – If the matter concerns recognition, here mutual recognition of certificates is implied, and this can be done by the certification system only.
G.M. – Let us say that an entrepreneur makes declaration. He imported goods and introduced it in the database that concrete goods should correspond to concrete standard act. Let us start from the fact that he does not have a laboratory and he establishes it mechanically. And if he has a laboratory it must have accreditation.
Otherwise he does not have metrological examination and, in fact, he does not have anything. He says that the wurst imported by him complies with certain standards. There must be a controller that will take a sample, take it to the accredited laboratory and examine it, and it will turn out that there are many abnormalities in it. Then it will turn out that it was a groundless declaration. That is the case with the wurst that is sold for 1 GEL. How can wurst cost 1 GEL?! Products imported from Turkey are twice as expensive there than in our country. Our entrepreneurs suggest that the Turks should remove all expensive components from the product and then import it to the Georgian market. That is why Turkey introduced a protective system – a market access mark in which ISO 9000 is indicated. It means that the product was examined in the laboratory and if it has this mark, the Turkish side will bear responsibility. The talk is of the fact that in case of declaration an entrepreneur bears the whole responsibility.
– Can it be inculcated in Georgia and whether it contradicts the market mechanism or not?
G.M. – I think its inculcation is necessary, it does not contradict the market mechanism. An entrepreneur confronts an option. Let me draw an example of Mercedes and BMW. BMW declares that it is a guarantee of quality and that is why it does not take a certificate. Mercedes assures the competent authority that it is good and that is why it takes a certificate. Here is the same case, an entrepreneur may assume responsibility. I would add that nothing will change if there is no political will. Passing of laws is a good thing but they must be fulfilled.
– Let us touch upon the second subject – the new variant of the new Tax Code.
G.M. – There are some mistakes in it and I do not know whether they have been made accidentally or on purpose. Our goods are exported without the customs. There there is a list that concerns wines. Our brands are enumerated: Teliani, Mukuzani, Khvanchkara, etc., their percentage content is indicated, as well as that there is a tax on their import. Let us point out that the matter concerns import. I want to understand, do we sell our name? Let us say that one ton of Khvanchkara was exported and bottled there, in importing it will be taxed in the amount of 5 Euro, but how can I control it if he exported 1 ton from here and sold 10 tons elsewhere? That is it turns out to be a sale of the name. Here the matter concerns a brand, France does not sell its brands. Phyto and veterinary services are being created at the customs. I cannot understand what they are creating. Tax on imported cars manufactured in 2006-2008 will be 0.5 GEL, that is 5 tetris per 1cm2. The tax on a 3 liter engine turns out to be 175 GEL plus 5% of the customs tax for each mentioned year. If you import a 10 years old car the tax will be too low. What will be imported to Georgia will not be cars, it will be rubbish. It will be good for the customers since cars will be cheap, but it will be very bad for the nation. An incentive for importing of old cars is given.

How Food Producing Enterprises
are Controlled
Non-governmental organization “The Institute of Free Economy and Business” continues the discussion concerning the new Law on Harmlessness and Quality of Food Products. We present you an interview with one of the authors of the law – the Director of the Food Safety Department, Mrs. Sophio Kemkhadze .
– If it is possible, tell us who worked on the Law on Harmlessness and Quality of Food Products and who supported this process?
– Harmlessness of food products, as a term, was introduced in our country not a very long time ago, and it implies protection of human life and health against threats caused by food products. The newly adopted Law on Harmlessness and Quality of Food Products serves this purpose. The idea of making of this law appeared in the Ministry of Agriculture that in its time turned for assistance to the international organizations. However, what has been done was done by the Georgian side with the support of international organizations.
I would like to speak about the merits of this law, what positive results it will bring to consumers so that they could feel protected and how it will improve business environment. It is clear that certain obstacles and problems may arise in the process of introduction of the law, which to a certain extent was considered and analyzed by us, and I will gladly share my views on these problems as well.
– What international organizations does the matter concern?
– These are the World Bank, European Commission and the US Agency for International Development (USAID). The work on the project started about two years ago. I want to point out that this is not a law written by one or two people or some department. For this purpose a workgroup was set up that included representatives of the Ministry of Agriculture and the Ministry of Health. Representatives from other state departments and parliament were also involved; we had consultations with the private sector. So, I would like to say that representatives of interested parties took part in the elaboration of the law, and as a result of this work we adopted a draft that was then turned into the Law on Harmlessness and Quality of Food Products. With the purpose of rendering technical assistance, international organizations were involved in this process that lasted for almost two years, since the experience of many countries was to be studied and analyzed. If we compare what was when we started our work to what we have now – after adoption of the law, we shall see that there is already a big difference.
– What was then and what is now?
– The situation in Georgia from the viewpoint of harmlessness of food products is still far from a wishful one. The reform in this sphere started when there was no mechanism by means of which the objectivity of a decision could be appraised, and it is clear that this gave opportunities for corruption transactions. In this situation everybody ended up losing – first of all consumers that were absolutely unprotected, the state that aimlessly and without result spent its resources, and business that was under the corruption pressure of numerous state controlling bodies and had to work in conditions of unfair competitive environment. This is what was then, and now we have the situation when this law strictly determines the issue of responsibility in the sphere of food products’ harmlessness. Today the Ministry of Agriculture determines the policy concerning food products’ harmlessness, the national service for protection of food products’ harmlessness, plants’ protection and veterinary was set up as a department subordinate to the Ministry of Agriculture that has the function to supervise over the fulfillment of this law.
– There are claims that this controlling body should not be subordinated to the state. Also experts say that the law contains unclear articles and terms that will make problems for entrepreneurs.
– I shall not agree with anyone on this issue. Provision of a minimum level of food products’ harmlessness is one of the main responsibilities and a strategic task of the country. And the state should provide for supervision over it. I also want to tell you that this is the first attempt to create a law of this kind, and it cannot be perfect. This is a framework law that establishes basic principles for the country’s system of food products’ harmlessness, distributes responsibility between the state and business, determines mechanisms for guaranteeing consumers’ protection, etc. However, this is just the beginning of a long way and it should be followed by a number of activities in order to really enable the law. Harmonization of this law with other laws must take place, a corresponding regulative base should be developed, certain assistance should be rendered to business so that producers could meet the requirements envisaged by the law, and many other things must be done as well. I repeat once more hat this law is the first serious step at the beginning of a very long and difficult way.
Some flaws may have crept in this law, and I consider any criticism aimed at its perfection as positive and acceptable. This is my approach to the critical comments that are made on this law.
– Please, explain how this law will create favorable conditions for the development of business and food production in Georgia, for businessmen, or will it, on the contrary, deteriorate their condition?
– It is clearly written in the law that its purpose is protection of health, life and economic interests of consumers in relation to food products so that it would not impede effective functioning of the market and its diversity. That is, the main purpose of this law is that the food products supplied to either you or me should not do any harm to our health. This should take place in a way that will not impede the market’s functioning, that is neither entrepreneurs nor the market should be restrained. I believe that this is a very rational and correct approach to this issue. We should agree that health and life of consumers is the most important thing as far as this law is concerned, but this does not mean that we do not care for business or producers of food products. Of course, the law introduces certain requirements towards food producers. However, from my point of view, these requirements as well as the pattern of their putting into practice are introduced and explained in the form will not impede the development of food production in the country. If the requirements envisaged by the law are observed, we shall see that the business environment will become competitive and transparent. From this point of view we contribute to the development of healthy competition. This law strictly determines those ones that can control entrepreneurs. By means of it we protect them against frequent and ineffective inspection, which is a big advantage. There will be only one controller over harmlessness of food products that at the same time will assume responsibility for trustworthiness of their harmlessness.
The notion “risk analysis” has been introduced in the law, that is all decisions and measures taken in the sphere of food products’ harmlessness should be based on the results of risk appraisal. This means that if you cannot substantiate why you take certain measures or why you complicate terms, you cannot apply them except for one case that is called the “principle of warning” and temporary measures can be taken. In this case an entrepreneur is protected once more, since in case of sanctions or restrictions against him, he must be told why it is done. That is, the environment becomes predictable and well-ordered, and there will be no chaos.
Besides, I would like to draw your attention to another important issue. The permanently increasing harmlessness requirements have a great effect on the international trade. And most of international trade agreements set an object of promotion of free trade, it becomes more evident that harmlessness of food products and similar technical requirements may turn into a direct or indirect barrier for trade, especially when the matter concerns importing of products of less developed countries to the markets of Europe and America. Thus, this law is of critical importance for the development of Georgia’s agricultural export’s potential.
Another positive aspect of this law is that it promotes partnership between the state and the private sector in order to reach the level of harmlessness of food products that is acceptable for the country. The state also bears certain responsibility – inspection, official control, regulation. However, business also should help it. By the way, in accordance with the law, an entrepreneur is responsible for what he produces. An integrated approach has also been introduced – from farm to the table. Here the matter concerns the chain and not its separate elements, which is very important. The law’s focus is shifted from certification of the finished product to the production process. It suggests to entrepreneurs to inculcate self-regulation systems so that they could minimize the risks in the production process.
– What does this self-control mean?
Here the systems of internal control and search are implied. These are simplified variants of the systems that have been approved in the world. Regulative acts, depending on the size of an enterprise and a group of risk, determine what kind of systems should be in each concrete case. These systems give entrepreneurs an opportunity of permanent controlling of the processes taking place at his enterprise and the possible risks. So, in this law there are a lot of things that will help Georgian food producers, but it should be said that many of them will have to improve enterprises and the production process, which will ultimately make their production more effective and provide for protection of consumers.