WTO – SELF – PURPOSE OR DEADLOCK WHAT WILL CHANGE IN TARIFFS CAUSE?

MAYA RAZMADZE

In 1999 after joining the World Trade Organisation, Georgia undertook particular economic responsibility and “game rules” of this organisation.

This was preceded by a one-year work of delegation from Georgia. In 2000, this agreement was ratified with 135 votes against 12. Thus, our customs tariffs will gradually become similar to WTO tariffs.
Instead of the present 5-12% customs tariffs in Georgia, the WTO agreement provides for 0 and 30% customs tariffs and fixed tax on 26 kinds of alcohol drink (except beer).
After membership in WTO, customs tariff on 5982 kinds of products will be changed. Only 12 kinds of goods will be taxed with binding tariff. Today, the 12% customs tax on import will change. The tax on other kinds of production will range from 0 to 30%.
Some experts fear that after the membership in WTO, too low customs tariffs on certain kinds of goods might damage local production due to the lack of defence mechanism from surplus, cheap import and concessions of the Georgian party.
Experts fear that country’s borders are not protected from smuggled goods; change of tariffs will not change the weather. Yet, what will new customs tariffs have in store for us? Will interests of the country and local entrepreneurs be protected maximally?
Roman Gotsiridze, budget office of the Parliament: “Georgia joined WTO. The Parliament unanimously voted for the list by which tariffs were confirmed. Now it occurred to Parliament members that there were some problems though in due time we made a 170 page report, we gave our numerous comments on this issue that were, unfortunately, disregarded by the government. Now there is no use crying over spilt milk. We will not be able to change the tariffs. Now we can only speak about the way of taking maximum advantage of the situation and protecting inner mechanism. We have this chance. Though the mechanism when 0% tax on the goods would be paid with there being 20% VAT in the border, is quite a serious handicap for both import and local production.
Today, some people naively believe that the development of economy depends solely on tariffs and protective policy.
The WTO tariffs will come in force since 2005, many of them even later as customs tariffs will reduce gradually. However, can we blame tariffs for the hard economic situation?Has anyone stood in the way of imposing higher tariff on different kinds of goods. However, higher taxes will bring damage to consumers as the goods get more and more expensive unless they are replaced by local production. Development of local production requires many conditions as well as investmenst.
The most important thing is that the country abounds in contraband goods without being able to take any measures for preventing it. Tariffs are effective only in a country with protected borders. If a border is not protected, no matter how high the tariff is, different contraband goods will penetrate into a country from different places. Therefore, there can be no talk of tariff policy unless our borders are protected.
As far as our liking of this or that tariff is concerned, do you think that the negative fact is that we are not able to protect internal market, while more positive fact is that we will have the opportunity to penetrate into other markets? In other words, everything has its positive and negative points. This very pragmatic approach prevailed when we became WTO members. Besides, when we say we do not like this or that tariff, we should also add whether a better benefit could be established. As a rule, no talks can be held with WTO as it is a legal entity. Negotiations are held with WTO member-countries. The Georgian government might have worked on some issues in a more qualified and better way by using lobbying elements, etc. Some non-professionalism was hidden behind the tariff policy.
One thing is obvious: the later we would accede WTO, the harder would be acceding conditions. The acceding countries of WTO – be that Armenia, Moldova or Azerbaijan would have to work in comparatively harder conditions as the world trend towards the protection of tariffs can not be halted. I think that we accessed WTO in time. As for flaw in the law, it should be corrected by economic levers.
– Some think that new tariffs will cause difficulties for local entrepreneurs.
We have the right to impose very high tariffs on tea – 30%. Yet, somehow or other it is not established. The government does not use this chance. As you can see, the matter does not concern tariffs only. Besides, establishing 30% tariff on tea means that foreign tea will grow expensive whereas local one is not of high quality. However, it would be another thing if there were tea rehabilitation programme and investments for its rehabilitation and penetration into the world market. Thus, the fate of economy does not depend solely on tariffs.
If the country had a perfect customs service, many problems might be settled. It would be a great stimulus to us if we were able to sell our production in the foreign market. Another moment is WTO membership which means that foreign firms are much interested in Georgia as this gives them access to other countries through Georgia. There is free trade regime between Georgia and Russia. For instance, it would be much easier for a Dutch firm to establish an enterprise here”.
After the membership in WTO, many branches of the country might give up their positions to foreign rivals. High-quality production is exported because the local environment is not suitable for successful business. For the last 5-7 years a great number of production was exported in the form of metal and equipment. The reason for it is low productivity of the branch and, therefore, the wish to escape the ineffective, non-business environment.
Demur Georkhelidze, chairman of the branch economic committee of the Parliament: “Membership in WTO was, certainly, a great and positive event because if you want to become part and parcel of the civilised world, you should gradually learn to filter and introduce world trends in your own country. There is no perspective without it. However, it is not an organisation where one can feel comfortable, care of nothing and benefit from the membership. Membership in WTO means inclusion in a great competitive environment. The purpose of this organisation is alleviation of competitive tension and contradiction of external and economic interests of state,regulation and development of single approach. For our country membership in WTO means undertaking great responsibility for the future. There will be no result unless Georgian economy is modernised in accordance with the world trends.
It is dangerous to enter this great ocean without having a special maneuvering ship. When we undertook responsibility after negotiations on tariffs, the government, appropriate structures of the executive power should have launched a large-scale modernisation process. Yet, two years have passed. From the viewpoint of adaptation of Georgian economy, these years can be seen as lost ones because the executive power was not able to take this step. In this case, our agents and subjects who work in this or that sector turned out to be in danger. They have failed to improve the industrial environment:. There are endless talks about economic policy. Correct tax policy will be Its constituent and an important strategic moment. However, proceeding from the general background, we have never heard money and credit policy regulate control levers and stimulate activity in this or that sector.
Today we will not be able to save non-perspective branches even If we establish 100%, 200% and 1000% tariffs.
Membership in WTO implied this. After entering a particular environment, we should have been aware of the fact that economic sectors of post-Soviet economy would cease functioning due to their non-productivity and ineffectively. We should have distributed all our limited resources among high productive spheres. Yet, the worst thing is that statistics cannot provide us with information on the sectors of economy where Georgian peculiarities, gift of a Georgian man will come out more effectively insofar as national advantages are concerned.
People are employed in sectors that have survived inertly. Regrouping of active people should have been determined by state policy. This has not happened. In this situation one can only say: state does nothing for us, I have my own business and I am a citizen of the country. Help me to protect my production”. However, it is difficult to explain to him that it is impossible to protect him by means of tariffs.
We have already become members of WTO. We can hardly withdraw from it. In case you did, what alternative would be left? Thus, today we should think about the way of establishing tariffs on certain groups of commodities. Tariffs might have a bad impact on some sectors in resource and processing productions. Viewed in a more larger context, this sphere might not become competitive, but it should still inform its subjects that this sphere is non-competitive and that it was offered priorities by the state. It should explaine that in case it stayed it would provide the necessary level for commercial viability. There are plenty of sectors in America, Japan, England and other developed countries that are not prior for the state, but normal economic environment helps an individual to decide whether he wishes to stay in the sector, undertake a particular niche and determine level of commercial viability on its own. It is clear he will not be able to build a big strategy, but everyone cannot manage to stay there. Niches have to be digested. Neither economy nor man likes open niches. We do not share this opinion. It is dangerous, I think. As soon as beneficial regimes expire, our economy might lose footing. The executive power and heads of the appropriate economic bloc should understand that waste of time is equal to catastrophe. Unfortunately, they fail to implement a purposeful and well thought-out strategy for the modernisation of economy within the frames of undertaken responsibilities.
When speaking about this or that branch and its necessity for the Georgian reality, we should take particular measures. Nor would we be able to evade purely social considerations. That is why, introduction of appropriate levers is necessary. There are many mechanisms in it as for instance, differential tax regime. We should forget about benefits. Benefits are unacceptable for the normal economy. Besides, the environment should be cleaned. People should not encounter with bureaucracy. Bureaucracy in our country might one day turn legal work into non-perspective. Bylaws of relationships between entrepreneurs and state should exist within the frames of constitution and rights determined by the law. A state can establish a different stimulus, regime in perspective spheres in order to enable natural reconstruction. People in authority should incessantly think about country’s transformation.
There are a number of regimes in Georgia that make it possible to penetrate into European and American markets. If we fail to do this in time, believe me, reasonable people will use this possibility for their own interests.
There are no unilateral events. Progress cannot be unambiguous. It produces desirable effects only when it is used properly. Otherwise, it can leadto nothing good. There are many examples of it. Sound attitude towards the present-day situation is a necessary condition for the coming of another day”.
WTO includes hundreds of organisations. This gives them much benefit. Unfortunately, we failed to take advantage of them. To experts’ mind, WTO membership might make it possible for us to join the global trade process and become a normal transit country.
Sandro Tvalchrelidze, economic expert: “When our entrepreneurs approach markets of other countries, they usually face the problem of protection from falsification. Let us remind you the poor state of “Borjomi”. Approximately 17 workshops function in Moscow that produce falsified goods. The same concerns Georgian wines. The workshops produce falsified goods by using trade marks and brands.
The World Trade Organisation is the only way for us to protect goods from falsification. However, we do not use the mechanism and thus we always lose – we meet all of their requirements. We do not protect our rights. This is the main thing. These are other game rules. Dumping methods cannot be used in external international trade.
We should use trade organisation if we want to enter the single system and get into single financial stream. We do not also use the right of putting shares of well-known firms and entrepreneurial subjects on capital market. Georgian entrepreneurs do not recognise this method. This can be carried out with the support of WTO. That is why we think that the first thing to do is to form a society versed in elements of entrepreneurial activities. We should teach an entrepreneur what international market is and how it functions. We still wish to step into modern century with wild methods. It is, certainly, impossible.
As for tariffs, each production should be analysed. This tariff covers both local and imported production. Thus, our production is protected in the domestic market. The greatest problem is that our domestic market is saturated. The purchasing ability of our population is low. The only possibility is development of other markets through the development of our entrepreneurial business. Only WTO can give us this opportunity.
We often hear that Georgian market abounds in foreign production. It is not so. For example, Gogi Topadze’s beer have completely ousted foreign beer from the market. The same was with Georgia wine, mineral waters. Georgian “ham” sells better that foreign one. The thing is that if the quality of our production does not differ from foreign one, consumers will prefer to buy Georgian production because of its cheapness”.
Experts think that during the work on tariffs Georgia failed to use methods of decreasing tariffs that would neutralise the damage of national economy. Decreased customs tariffs will reduce price for imported goods, which will have a negative impact on the local market.
According to our responsibilities, a majority of full production will be taxed with 0-12% tariff. Approximately 4900 kinds of production in classification of goods will be taxed with 34% tax rate of which 800 are agricultural and the rest industrial produce.
A high customs tax is imposed on the import of potatoes in almost all countries. Countries producing this production (Byelorussia, Ukraine, Russia, Poland) have established 25% tax barriers in order to protect local production from import. Despite the fact that there are enough potatoes in Georgia to meet the demands of market , already in 1999 one million dollars Turkish potatoes have easily overcome the 12% limit.
Zurab Tkemaladze, Parliament fraction “Entrepreneurs”. “We made a racket two years ago when work on WTO membership and signature of agreement was performed and when the agreement was ratified in the Parliament. Membership in any civilised associations as well as in WTO is, certainly, a positive event. It is important for our export – from this point of view, we cannot refuse it. Each developed country should aspire for it. However, we should not also forget the fact that we are on a low level of economic development.
For 10 years, despite the progress in certain branches (it is a very small progress), the local entrepreneurial business has undergone stagnation. We have not even reached the level of 60 years. Thus, we open doors to our market through our membership in WTO. They open doors to us, too. We should, certainly, be ready for it. Will our production be able to compete with their one? However, when we say this, no one should think that he will not be able to stand competition insofar as quality and potentials are concerned. From this point of view, we are on a good level. As for foodstuffs, we have ecologically pure production. We had a high entrepreneurial culture, but this mechanism should be put in motion. Unfortunately, we have poor conditions for it.
As far as we know, production stops in the conditions of destructive tax legislature and regime. There is such situation in light, engineering and other industries. Light industry works only in part, agriculture dwindled. Therefore, we should make competitive production before opening doors to the West. Yet, we should also remember that the West is not in the habit of opening its doors so easily. We can tell about the example of the blockage of our exported production even after membership in WTO.
Who would ever think that Georgia known as a country of flowers imported flowers from Holland and Dubai? The same concerns vegetables. Potatoes are imported from Turkey. The Turks then buy Georgian potatoes at a high price on their way back from Samtskhe-Javakheti. The same is with Georgian tea that met 95% demands of post-Soviet market. Should not have we preserved 10-15% of this index? The same concerns wine, production of light industry. Do we lack a potential? The production of some enterprises was sold successfully. Any goods in our market – tricot, foodstuffs and products of engineering – is very cheap. The purpose of it is winning of market. Already in 1994-1995 we said that 10 years later we would not have qualified workers, engineers and other specialists. When we produce everything, the price of imported cheap products will rise, and we will find ourselves in a difficult situation as we do not have our own one. We should fight with it.
China is often set as an example. China had to wait 15 years, and still it was not able to accede to WTO. It is a lie. It was not that China found it difficult to draw up the contract. It did not wish to give up its positions. China did not hurry to accede to WTO before it won the world market with its production – silk, cotton. Yet, we boast of being WTO members while Russia is not because it defends its positions. When production is imported, it should be taxed in the place of destination and not in the place of origin. Russia levies tax from oil, gas in its country because it takes care of its wealth. Russia does not give its positions for the sake of membership in WTO. It will draw up agreement after strengthening its own positions.
Strange as it may seem, but apples from Russia are cheaper here than fruit juice made in our country. Yet, we are country of fruits, moreover, compared with Russia. They purchase fruit and concentrates from other countries and then export them to our country. This imported production is much cheaper. There was 12% barrier before, now we do not need even this tariff. And was not this 12% barrier a right way? Credit resources in our country make up 20-24% and 6-7% in Russia. Russia excels us in these figures not to mention modern technologies that we are short of, and the entire infrastructure that is in disorder here. We need special vehicles for transporting goods from one place to another. Besides, technological regime should also be observed because we are not provided standard energy. We should take this into consideration.
Binding tariffs include a bit higher rates. Georgia can raise these rates and then gradually decrease them during 5-6 year transitions period. Three years have passed, and we have not yet applied this mechanism. Two years ago we managed to increase customs tax on some classification of goods. Why did not the state do this before when it was possible to establish 30% three years ago. Today, it is impossible to establish a 30% barrier. We can only establish a 15% one and then gradually decrease it. Why did we lose the three years? Who did this? They should be answerable for it. People who held incorrect negotiations with WTO and failed to defend interests of Georgia, should also be brought to book.
A question has recently been raised: let us imagine that we agreed with member-countries of WTO on % tariff, but what should we do in relations with non-members of WTO that ignore the tariff and have 30 or 10% customs tariff? The tariff is not differential.
After membership in WTO, the procedure of exporting wine production to Europe, f.e., Germany, became a complicated one. Germany demanded a special certificate, but our country said it would not issue such certificate. One of Georgian companies has drawn a contract with Germany for more than half a year, but it still did not manage to overcome the barrier for exporting the goods. Yet, we have many of agencies that issue certificates, but they create barriers artificially leaving entrepreneurs stranded.
I welcome WTO membership in case Georgia is presented worthily there and interests of our country and entrepreneurs are protected. I offer you a list of certain goods that should be determined after membership in WTO. Customs tariffs should be established on 5982 kinds of goods:
12 kinds of goods among them apricot, berry, merry, peaches, strawberry and tobacco import will be taxed with 30% binding tariff;
20% – for tea, vegetables, jam, cement import;
18% – macaroni, canned vegetables, (frozen) potatoes, beans;
12% – grapes, pepper, trimmings, milk products, tricot, shoes, grain;
8% – melted cheese, fabric, carpets, candles;
7% – some clothes knitted with chemical threads;
6,5% – attar of roses, vinegar, cosmetics, concrete, fire-proof cement;
5,5% – chemical production;
5% – cheese, curd, sugar;
4% – raw materials for light industry;
0% – bran, paper, printed production, household goods.