What is in Store for Georgian Wine and Georgian Export in General


Russia’s ban on importing Georgian wine has caused a perfectly well-grounded storm. In 2005 the wine export made up 81328 thousand USD and there was a 66% increase in comparison with the previous year (48719).

According to this indicator, it holds the fifth place after nuts, gold and mineral waters, but in money terms – the first one – 37 million USD. As to its volume, it is the third largest item in the export basket, and this takes place when the indicator of such traditional commodity as scrap is decreasing in this basket. A vital importance is attached to this item. Russia which, in its opinion, punishes Georgia, is in fact teaches it to live independently. Georgian government structures have not considered export issues so keenly for a very long time.
How big is our potential, what geography and dynamics it has, what kind of promotion it needs and what possibilities there are on new markets? Today this is Georgia’s most important problem in the economy.

eorgia’s trade balance has been in a rather lamen
table condition for years. In particular, the turnover
and deficit are increasing but the coefficient of surpassing import by export is not. The geography and the list of partner countries are increasing as well, but the number of countries with which we have a positive trade balance is not either. On the whole, export indicators are increasing, but the structure of the export basket is not changing.

It can be seen from this data that last year we exported 85 million USD worth of wine. This is the second largest indicator of our export basket and the main part of it falls on Russia.
What is going on the world wine market?

The main world markets of both wine and other products are not developed by Georgia. This takes place when the country will have to solve the following issues:
1. The problems related to certification, metrology and standardization.
2. Inclusion of Georgian business structures in the civilized structures and the system of preferences.
(Let us consider the example of Europe where there is a so called Generalized System of Preferences (GSP) for the developing and problematic counties as ours. Its purpose is rendering assistance of the developed countries to the developing ones in promotion of export and giving preferences. According to this program, the trade tax was lifted in Europe from 7200 descriptions of Georgian goods.

This list was enhanced by the new program – GSPP+. After conferring this status, we and all countries of this system were given a possibility of tax-free importing to Europe these descriptions of goods. This includes fruit, saltpeter, pitchers, container glassware, cement, etc. Unfortunately, this does not include wine yet, for which there is a tax of 13.1 euro and that is why only 3% of our wine export falls on Europe).

3. Perfection of tax, accounting and control systems in accordance with export production requirements.
4. Creation of investment promotion and protection system.
5. Creation of the system of security and judicial protection of property along with perfection of the communications infrastructure.
On the whole, this is a guarantee of improvement of our trade balance and decreasing of the deficit.
The Georgian Chamber of Commerce and Industry with the support of our magazine, non-governmental organization “The Institute of Free Economy and Business” and the US Agency for International Development (USAID) started a discussion on this bloc of issues and outlined the ways of solving them.
The conference that was held on April 18 at “Sheraton Metekhi Palace” hotel together with parliamentary, international and business structures with participation of experts and scientific circles was devoted to the first part of the bloc.
The participants of the conference:
From the governmental circles – the Deputy State Minister in the sphere of reforms – Vakhtang Lezhava, the First Deputy Minister of Economic Development – Natia Turnava, the President of the National Accreditation Agency – Paata Gogoladze, the Director General of the National Agency for Metrology, Standardization and Technical Regulations – Nodar Khatiashvili, from the Ministry of Agriculture – The Director of Food Analysis Department – Sopho Kemkhadze
MPs – Zura Tskitishvili, Murman Kuridze
The US Agency for International Development (USAID) – Irina Salukvadze
EU Ambassador – Maria Herrera
IFC –Givi Petriashvili
The Georgian Chamber of Commerce and Industry – Shota Makatsaria, George Kakabadze
PSP – Director General, Eka Koplatadze
Business groups: “Shumi” winery
Experts – Tamaz Agladze, Jemal Manjgaladze
Non-governmental organizations – “The Institute of Free Economy and Business”- Nino Arveladze, “XXI Century” – Shalva Melkadze
Scientific circles – the Director of the Institute of Hygiene Irakli Paghava, the Director of the Institute of Metrology Iason Mujiri, professor of Tbilisi State University Eter Sarjveladze
The sketch of the issues considered at the conference was made by Emzar Jgerenaia

We present you a part of this discussion (the whole material will be published separately along with recommendations)
A lot of problems were designated at the conference because of which business has many unjustified barriers and, correspondingly, the local produce cannot be exported. Georgia does not have a standard base, and the laboratories will not be able to issue certificates that comply with European standards. “Sakartvelos Ekonomika” magazine devoted three issues this subject and each problem was considered in details. It has became clear and no one doubts it that the National Agency of Standards, technical laboratories and metrology need state attention and assistance. This agency’s Director General Mr. Nodar Khatiashvili pointed out the importance of standardization, standards and metrology in this sphere, and its problems as well. A representative of the US Agency for International Development Mrs. Irina Salukvadze spoke about USAID’s program that was started with the purpose of development of small and medium business. All speakers stressed that business should not have problems because of artificial barriers since the prestige of the state suffers from it.
A representative of the US Agency for International Development Mrs. Irina Salukvadze:
The project for promotion of small and medium business
The objective of the project for promotion of small and medium business contribution to the development of small and medium business in the country, which first of all implies opening of new enterprises and creation of new jobs. A group of international experts is implementing the four year project of the US Agency for International Development.

The project’s mission: the development of the private sector with the purpose of economic prosperity and stability.
The project for promotion of small and medium business is planning to contribute to the dialog between the private sector and the government in order to improve business climate in the country and by joint efforts solve the problems that are currently impeding a sustainable economic development.
With the purpose of availability of finances to small and medium business, the project makes provisions for a constant dialog between credit organizations and business in order to solve the problems related to crediting that exist on the market, and meet the demand of small and medium business for a long-term financing. Besides, with the purpose of reduction of risks related to crediting, the implementation of the crediting development program (DCA) of the US Agency for International Development will help commercial banks in granting credits to small and medium enterprise. The implementation of the crediting development program has already been started by Republic Bank, and the guarantee of the US government for the 3 million credit portfolio makes up 50%. According to the project, there is hope that other Georgian banks will also participate in this program. Our ultimate aim is creation of such situation and program for Georgian banks that will give them an opportunity of establishing partner relations with international financial institutions, strengthen the local stock market, which will be a precondition that in future there will be no necessity in the aforementioned guarantee.
The project for promotion of small and medium business has formed in the whole of Georgia a network of business consulting centers existing on the basis of business associations that will render consulting assistance to representatives of business in issues related to various spheres, such as legislation, regulation, management, business planning, taking of loans, etc. Besides, within the framework of the business consulting center, assistance should be rendered to representatives of business so that they could hold a dialog with the government on the strategy of national development, tax treatment, administrative reform and other issues in which cooperation between the government and representatives of business is necessary. For business consulting centers the project selected business associations in Tbilisi, Telavi, Batumi, Kutaisi and Zugdidi which, at the same time, have business consulting functions. With the purpose of quick information exchange and collection of all necessary data, the project renders assistance to business consulting centers in creation of an interactive web page – www.bso.ge. The web page implies creation of a business assistance/consultation database for both the internal network and outside consumers, rendering of consultation services and information exchange via internet.
Bringing of the business environment to conformity with the requirement of the business community, in particular, rendering of assistance to business associations in the self certification issues, as well as contribution to inculcation of the standards of the International Standardization Organization (ISO) in the Georgian business represents the most important task of the project’s activities. “ISO 9000 and quality management” seminar was held within the framework of the project. The issues presented at the seminar contained a general information on the standards of ISO 9000 and 14000 series and quality control systems, as well as quality and environment protection management, quality management principles and the steps of the certification process. After finishing of the seminar, several business association and banks (Insurance Association of Georgia, American Chamber of Commerce, association Georgian Women in Business, Employment Association of Georgia, ProCredit Bank) and also private companies (Instra transportation company, Georgian Glass and Mineral Water company, United Georgian Technologies, etc) expressed their wish concerning inculcation of the quality management system in their companies. With the purpose of achieving of the aforementioned goals, the project for promotion of small and medium business has held a training on the issue of “how to work out and implement the quality control system in a company in accordance with ISO 9001:2000 international standards”, in which took part the above mentioned organizations.
Taking into account the above-stated, we can summarize the project’s directions:
• The US Agency for International Development is a guarantor of the program
• Rendering of technical assistance, holding of trainings for financial institutions and small and medium enterprises
• Creation of business consulting centers for small and medium enterprises in Tbilisi and the country’s regions with the purpose of enhancing and strengthening of business
• Rendering of assistance to business associations in the issues concerning working out of self certification and ISO standards
• Rendering of assistance to business associations in the development of the ability of civil interests’ protection
• Rendering of assistance to business associations and educational institutions and other organizations in the development of the ability of entrepreneurial activities
Nodar Khatiashvili:
We are an organization set up on the basis of “Sakstandard”, but created as a result of liberalization. However, no one should think that we are direct successors of “Sakstandard”, we have our own functions and tasks that the state delegated to legal entities of the law and try to fulfill these tasks. In my report I would like to briefly touch upon understanding of quality infrastructure. And in the second half of my speech I will briefly touch upon the current situation in the country in the sphere of metrology and standards. Together the issues of certification, quality, accreditation, ecology, standards and metrology represent the quality infrastructure. It is impossible to speak about safety without quality infrastructure. The basis of what is quality infrastructure? It is the basis of the country’s social-economic development and national, regional and international trade, and includes such issues as environmental protection, health, and protection of consumers’ rights. It is clear that the government, production, trade are interrelated, this mechanism is working, but the quality infrastructure is concealed. It is a lubricant without which this mechanism will stop. That is, it is a system that must exist.
This is how we conceive the basic elements of the quality infrastructure: standards, metrology, certification, and accreditation. Here we have a chain of accumulation of costs, that is the entrepreneurs that work, and accumulation of these costs takes place every day. We have international systems, that is the quality infrastructure that is developed and for which we are heading. What doest this infrastructure do? It is a mediator between our entrepreneurs and the infrastructure that exists outside the country. In short, the international systems are united, and our infrastructure’s responsibility is to make these structures available for our production. Then, of course, the matter will concern the fact that we have quality, we shall not have dubious regulations from other countries, which will rid us of many problems.
What determines the quality infrastructure? As I have already pointed out, it is internal state frame conditions, that is legislation and significant legislative tasks that regulate the safety level. First of all, these legislative tasks include metrology, that is a single quality management system in the country. Be it standards or norms, we speak about free standards and their voluntariness, but we should not forget that standards in Europe are placed under directors’ supervision – this is a normative documentation the fulfillment of which is obligatory. That is why we should not mix up standards, norms and technical regulations. In other words, one thing is an element of the quality infrastructure that the country needs, and the other one – the standards that are necessary for ecology and environmental protection purposes, and also regulations that will regulate the relations between the state and private organizations. The matter concerns the controlling and supervisory bodies.
In the infrastructure network you can clearly see how closely the main standards are interrelated, that is the norms are placed in the center and related to almost all elements. The result of our reform was that all elements of this system are interrelated by the technical hierarchy, and not by the administrative one. It is written in the new law that we should give more independence to these systems so that they would be independent and impartial. And the quality infrastructure should work at the level required by the international organizations. We cannot give preference to one system only and leave out another one, that is develop only accreditation without paying attention to certification and metrology, it will not turn out so, that is, all the elements should be included in the system and develop evenly. So, concrete decisions on the development of one of the systems will not solve the problem. We had “Sakstandard” with all its branches, and after the reform we have two bodies: these are our agency and the national accreditation body. There is an Institute of Metrology in the agency, that is the standard base and the Department of Standards and Technical Regulations, the main purpose of which is approving of the existing standard norms, registration and implementation of other processes. I would like to speak to you about the importance of the standard base and metrology, that is here the importance of the researchable units is presented, the importance of measurements. 1. Safety of products and services 2. Ecology and its provision. Of course, technical regulations are necessary and should be worked out. These are legislative acts, that’s is putting in order of the fine system in the delinquency code, etc., without which the law and the technical regulations do not work. To provide for all this, it is necessary to have independent laboratories and reliable examinations.
The most important free bloc of the quality infrastructure is entrepreneurs. They want to have gauged devices, that is they are the people who think of quality, exporting and selling of their products. The second bloc of my work, that represents a task given by the state, is standards. Standard registration requires specialists of different level, expert examination, bringing to conformity with the existing documents or other standards and many other things. The first recommendation and remark expressed by “Retro” two weeks ago is joining the ISO. Its economy is developing dynamically and it seriously aspires to entering the international market. Joining this organization gives us 9-12 000 USD a year as a tax on the state’s part, it is a catastrophic sum, in return the national standardization body will get free of charge from ISO all international standards that will be worked out. Of course, all the changes in the old standards and thirdly and fourthly – the standards in prices that we shall need. Each separate entrepreneur can purchase these standards that are available everywhere. For instance, the accreditation body purchased the standards of 17 thousand series. However, a standard perishes without renewal. A standard given to an organization that pays no attention to it perishes, and possession of it loses any sense.
The base existing in the agency is also presented here – regional standards or the standards of the Interstate Council for Standardization, Metrology and Certification, an organization established under the CIS Council. A certain standard base exists in the sphere of quality infrastructure. We proudly point out that “Borjomi” is registered in accordance with this standard. The World Trade Organization promised to grant us 200 standards free of charge. Now the standards department is considering which standard is a priority. However, today there is practically no demand in this sphere, I have not seen a single organization or ministry that applied with a request concerning switching to European standards or purchasing of some standard. Our strategy is becoming a member of the ISO. The first task will be receiving and declaration of standards, provision of the quality infrastructure with standards and cancellation of the conflict standards. This is envisaged in Article 5 of the WTO agreement, in which it is written that a national body existing in the sphere of certification, i.e. compliance, should actively join ISO organization with the purpose of taking over of rules established by this organization in the system of international certification and granting them to organizations working in this sphere. For the time being, we do not have technical regulations and any entrepreneur can choose a standard of any country, get registered and work in accordance to it. An importer can also produce this standard and import products based on it.
How will safety be protected in this case? What does it require? In one of the articles of Decision ‡45 the government showed that the state administrative bodies, ministries, etc., that is those ones that implement supervision functions, are obliged to produce the parameters in relation to which they will implement supervision based on the argumentation that these parameters will have to do with safety only. When the matter concerns quantitative indicators of the parameters, the government’s decision says that, in case of absence of the document, they will be controlled by the base existing today.
There is an issue – quality, supervision, ridding of entrepreneurs of various barriers. I would like to suggest you an opinion as to how the supervision system should be presented, in what case an entrepreneur may bear responsibility and when the state will need it. Safety is a priority of the state, this is acknowledged by all countries. It is clear that the state should control and regulate safety by the legislative base. This is regulations, metrology, accreditation system, that is the laws by which their activities are regulated, and administration will be implemented by the supervision bodies.
Quality provision is a corner stone. There is often lack of co-ordination between the country’s different structures, disagreements between the government and different systems of the quality infrastructure often take place as to which body has the right to control quality, and if there is a need of a state control over it. Securing of quality management takes place by the legislative base, the Law on Protection of Consumers’ Rights and inculcation of the quality system in the country. Who and how will control the market? This issue concerns entrepreneurs, the government and the parliament, and should be solved by means meetings and cooperation. Roughly speaking, we have a label for products, the list of parameters that fixes the safety requirements. A person should be a quality product, but he is not sure of its correct declaration. The labels’ rule should be strictly determined, that is an entrepreneur should make a label only according to the parameters he is sure of and receive an examination statement. As a result of it, we shall have quality and protected products on the market. Consumers will have an opportunity of choosing of a product that has no indications but is rather cheap. All of us know that smoking makes serious problems for human health, but we smoke all the same. If I have no money, I shall buy this product and eat it, that is there will be no guarantee of safety. Its quality will be dubious, in other words, if I do not want to spend money, I can eat a low-quality product.