How should we export goods to europe

TAMAR Beruchashvili

One of the first agreements between Georgia and the EU in the sphere of textile products trade was concluded and was in force from 1 January 1993 to 31 December 1999.

According to the agreement, a certain part of Georgian textile and clothes export could fall under quantitative restrictions on the EU market in case the volume of export would have exceeded the determined amount (from 0.35 to 4%, according to different classes of goods) of the previous year’s total import of the mentioned products to the EU market.
In view of practical non-existence of textile products’ export in Georgia, the country did not make use of the mentioned agreement, but after Georgia’s entering the World Trade Organization (WTO), the WTO’s agreement on textile products and clothes, which had to do with gradual lifting of qualitative restrictions on textile products and clothes between of the WTO (the process ended on 1 January 2005), became relevant. Thus, the necessity of concluding a new agreement on textile products trade became irrelevant.
From 1 July 1999, the agreement on partnership and cooperation between the EU and Georgia came into effect, one of purposes of which is promotion of trade by means of using of the norms envisaging reduction of barriers and inadmissibility of discrimination. The agreement determines a bilateral most-favored-nation treatment (MFN). Thus, Georgia enjoyed the most-favored-nation treatment on the EU market even before its entering the WTO, and after entering the WTO it enjoys the most-favored-nation treatment in relations with all WTO countries.
The agreement on partnership and cooperation also envisages an exception for the most-favored-nation treatment, that includes the advantages given to the developing countries within the framework of the Generalized System of Preferences (GSP), in accordance with the WTO’s decisions and other international agreements.
GSP was elaborated in 1968-1970 under the aegis of United Nations Conference on Trade and Development (UNCTAD) as an incentive for the developed countries to give nondiscriminatory preferential tariffs to the developing countries’ export. GATT approved this approach by a special decision as early as in 1971, and after expiration of its validity period, by the authority giving paragraph in 1981. The European Community introduced its GSP in 1973 for the first time, and since then it has been implementing it in different forms.1
The EU’s Generalized System of Preferences uses a classical tool of trade policy regulation – tariffs, traditionally representing an independent tool of trade policy, which contributes to the development of trade. This system offers lower customs tariffs to the developing countries in comparison with the developed ones, by means of which it contributes to provision for a preferential treatment of their export to the EU markets. The Generalized System of Preferences promotes the industrialization process in the developing countries, export diversification and, correspondingly, increasing of export revenues. In accordance with the GSP scheme that has existed so far, unilateral tariff preferences were introduced for 178 countries, including Georgia. The GSP scheme included about 6.900 descriptions of goods, 3.300 of which were classified as insensible goods that enjoyed duty-free treatment, while sensible goods with 3.5 percent point reduction of the most-favored-nation treatment (the most-favored-nation treatment minus 20% for textile products/clothes).
Along with GSP system, special additional schemes – “Protection of Labor Rights”, “Struggle against Production and Trafficking of Narcotics” and “For the Less Developed Countries” were also in force.
Georgia met all the requirements for granting additional preferences existing within the framework of GSP scheme, which could have become an additional incentive for Georgian export. Correspondingly, as yearly as since 2002 the Georgian government has been holding negotiations with the European Commission concerning granting to Georgia of special incentive arrangements for Protection of Labor Rights, which, withing the framework of GSP, implied an additional 5% reduction of the effective customs tariff for the so called sensible goods. However, the mentioned agreement was not reached, basically because of the dispute between the EU and India within the framework of the WTO.
In view of some flaws of the EU’s GSP scheme, later the European Commission elaborated and on 27 June 2005 the EU Council adopted a new legislative act (Council Regulation 1980/2005), in which determines the system of the EU’s trade preferences for the developing countries for a ten year period.2
The GSP system, which existed so far, has been simplified and the system of five preferences was reduced to three ones:
– The General Arrangement, which implies a zero tariff for insensible goods, while the tariff for the sensible goods is reduced by 3.5 percent points from the effective MFN tariff. About 300 new descriptions of commodity groups are added to the mentioned category.
– “Everything but arms”, which with a zero tariff and without any quotas gives access to the EU market to the 50 poorest countries, is similar to the one that existed before.
– Introduction of new GSP+ tariff concessions for sustainable development and effective administration.
GSP+ scheme includes about 7.200 descriptions of goods that will be admitted to the EU market without customs taxes and considerably differs from GSP treatment (see the table given below).3
The right to use GSP+ trade regime is given to the countries that are distinguished by a sustainable development, effective administration system and which, with the purpose of obtaining the mentioned trade regime, ratified the necessary international conventions (23 conventions) in the spheres of human rights, labor protection and other ones. At the same time, it is necessary for them to verify that they are small GSP’s beneficiary countries and that their economy is less diversified.
For this purpose, it is necessary that:
– The volume of import implemented to the EU in the five largest sectors according to GSP should make up more than 75% of the total volume of import implemented according to GSP;
– Import from this country implemented according to GSP should make up no more than 1% of the total volume of the import implemented by the EU according to GSP. The scheme implies a new scheme of trade preferences for the developing countries for the next 10 years. However, its reconsideration will be made once in a three years’ period. The current scheme will be effective till 31 December 2008.
It is noteworthy that if the country does not meet the criteria of sustainable development and effective administration (will infringe upon the corresponding conventions) the matter will concern the termination of the effect of GSP+. The country can also be deprived the right to use GSP+ treatment if the World Bank recognizes it as having high revenues during the past three years, and if the share of the five largest sectors in the total amount of products exported according to GSP+ treatment is less than 75%.
In accordance with the decision of the EU countries, pursuant to European Council’s regulation ¹980/2005, under the renewed Generalized System of Preferences Georgia was granted preferences (GSP+ trade regime) for sustainable development and effective administration. Thus, starting from 1 July 2005 Georgian entrepreneurs are given an opportunity of enjoying GSP+ trade regime. It is noteworthy that, out of the post-soviet countries, only Georgia and Moldova have the right to make use of GSP+.
Taking into account the fact that the EU is Georgia’s second largest trade partner after the CIS, granting of the mentioned preferences should become a significant incentive for exporting of Georgian products to the EU market.
For years, the trade between Georgia and the EU countries has been market by dynamic development. The main partner countries are: Germany, the UK, Italy, France and the Netherlands. According to the data of the State Statistics Department, over the past years about 30% of Georgia’s foreign trade turnover falls on the EU’s share, including 17% of export and 35% of import.
According to the data of 2005, Georgia’s trade with the EU countries made up 836 600 million USD, which is approximately 15% more in comparison with the previous year’s indicators.
Georgia’s main export commodities to the EU market: nuts, mineral and aerated waters, mineral fertilizers, ferroalloys, copper ores and concentrates, unprocessed gold, ferrous metal scrap, etc. The main import articles are: passenger cars, therapeutic agents, sugar, computers, oil and oil products, etc.
In the context of the development of trade with the EU, noteworthy are the results of the EU’s recent enlargement. On 1 May 2004, the regular stage of the EU’s enlargement was over – 10 countries of the Central and Eastern Europe (Estonia, Latvia, Lithuania, Poland, Czechia, Slovakia, Slovenia, Hungary, Cyprus and Malta) became full-fledged members of the EU, and it means that all terms and requirements of the EU’s trade policy were enabled for these countries, all bilateral and multilateral provisions of the trade and economic agreement and the assumed obligations applied to them, along with protective and other trade measures. Currently they are obliged to apply the single customs tariff of the EU, the trade rules and administrative procedures. In August 2004 Georgian parliament ratified the Protocol on Partnership and Cooperation concluded between Georgia and European communities and their member-states in Brussels on 30 April 2004, according to which the relations between Georgia and the ten new members will be implemented on the basis of the provisions of the Agreement on Partnership and Cooperation.
Proceeding from the changes that are liable to implementation in the customs and tariff sphere, the trade policy of the new members will be completely brought to conformity with the EU’s trade policy, which, along with positive aspects, implies applying by the new member-states of technical barriers and restrictions in trade (e.g. quotas for textile products, steel and some industrial products). At the same time, the new member-states will apply the mechanisms of internal support that are applied by the EU.
It is natural that a question arises: what effect will the aforementioned changes have on the Georgian export?
According to the statistical data for the recent years, the specific share of the Georgian trade with the new ten EU member-states is very small in the total volume of Georgia’s trade. Over the recent years, the trend of reduction of trade with these countries have been observed. For instance, if in 2000 the specific share of the Georgian export to these countries made up 2.1% of the total export, in 2001 the mentioned indicator made up 1.8%, in 2002 – 1.2%, and according to the data of 2003 – 0.8%. A similar trend is observed in import as well. Alcoholic and soft drinks, pharmaceutical products, nuts, ferrous metals, canned goods in small quantities, etc are exported from Georgia to the mentioned countries. The share of the mentioned products in the total export is insignificant, e.g. in 2003 the total wine export made up 36 million USD, while about 2% of the wine export falls on the new 10 member-states.
After joining the EU they adopted the EU’s single import-customs tariffs for the goods that Georgia mainly exported to the markets of these 10 countries, the customs tariffs were chiefly reduced, though in some countries they were increased.
Before the 10 countries became new members of the EU, Georgia had enjoyed a preferential treatment in trade with 4 countries out of these 10 ones (Czechia, Slovakia, Poland, Estonia), which had a system that differed from the one in the EU. After joining the EU, all 10 members will be obliged to apply to Georgia the preferences in trade in accordance with the EU scheme, which implies enlargement of the export market for Georgian products from 15 European countries to 25 ones, and exporting of products to this market at a considerably reduced customs tariff. Taking into account the aforementioned, the conditions for admission of Georgian exporters to the market are being improved, since several different trade systems will be substituted for a single one, which, in its turn, will simplify a number of administrative procedures for the exporters.
In general, the new 10 countries’ joining the EU will simplify the access of the Georgian GSP based export to these countries and in prospect creates a possibility of increasing this category’s export. However, noteworthy is the fact that in the short run the Georgian export will have certain non-tariff barriers, as it has already taken place in case of “Borjomi”. In view of the fact that the process of certification of “Borjomi” mineral water was not completed by the moment of Latvia’s entering the EU, i.e. by the 1 April 2004, the Latvian government prohibited importing of “Borjomi” mineral water to the country’s market. Both the company and the state suffer losses because of these restrictions. According to the preliminary data, the state’s losses made up 155 000 USD, and that of GG&MW company exceeded 130 000 USD.
It is interesting to consider the situation related to the Georgian trade with the EU in connection with practical application of the EU’s Generalized System of Preferences. It should be pointed out that Georgia’s GSP based trade with the EU has considerably increased over the past years. According to the statistical data, if in 2005 the Georgian export to the EU made up about 70 million USD and 18.5 million worth of goods made use of GSP preferential treatment (26.4% of the total Georgian export to the EU), by 2003 the Georgian export increased by 76.0 million USD, and about 42 million USD worth of export (55.3%) was implemented in accordance with GSP treatment. According to the data of 2004, the Georgian export to the EU made up 111 million USD, of which 50 million USD worth of products (45%) fell at GSP treatment.
Correspondingly, the number of “Form A” certificates of origin necessary for making use of GSP preferences has increased: in 2000 there were 358 ones, in 2001 – 305, in 2002 – 309, in 2003 – 528. In 2004 494 certificates were issued. The indicator of GSP application (utilization) in 2003-2004 made up about 52%, which was one of the highest indicators among the countries making use of the EU’s preferences.4
In 2003 the following commodity positions of the Georgian export were enjoying the GSP treatment in the EU: soft drinks – 11.1 million USD (14.6% of the total export to the EU), ammonium nitrate – 12.3 million USD (16.2%), ferroalloys 4.4 million USD (5.8%), nuts – 7.9 million USD (10.4%). In 2004 the commodity positions of the Georgian export did not change and were as follows: soft drinks – 10.5 million USD (13.9% of the total export to the EU), ammonium nitrate – 9.0 million USD (11.9%), ferroalloys 4.8 million USD (6.3%), nuts – 3.9 million USD (5.1%).
Thus, in 2003 the preference for the Georgian exporters from making use of GSP treatment made up 1.4 million USD, and in 2004 – 1.8 million USD.
As it has already been pointed out, Georgia has been enjoying the new GSP+ scheme since 1 July 2005, which applies to 7.200 descriptions of goods that can be admitted to the EU market without customs taxes.
In fact Georgia has become a country that makes use of GSP+ treatment, it obtained the free trade treatment from the EU for about 75% of the tariffs that have to do with the largest part of the current Georgian export to the EU. GSP+ gives a unique chance for textile products trade, since it applies to textile products on the whole (commodity codes 50-66).
As to the prospects, out of Georgian export products we can use wine, natural and mineral waters and a number of other products, which have serious prospects on the EU market.
Wine
Wine is Georgia’s important traditional export product. In 2005 the total registered wine export made up 81 million USD, which is 33 million USD more than in 2004. The export of Georgian wine is characterized by a stably increasing trend, though this sector largely depends on Russia’s consumer market. The share of the EU countries is insignificant and currently does not exceed 3% (about 2 million USD worth of products).
After the official process of EU’s recognition with Georgian wine was finished in January 2004, there appeared a serious prospect for exporting of Georgian wine to the EU market. From now on Georgian wine producers can export wine to the EU market in unlimited quantities. For this purpose Georgian entrepreneurs should present a special VI1 certificate, which will be issued by a corresponding body accredited in Georgia and that will contain a detailed description of the wine intended for the EU market. At the same time Georgian exporters will have to meet the some rules having to do with wine trade (non-tariff requirements).
It is noteworthy that the main kinds of wine do not fall under GSP+ treatment granted to Georgia in 2005, though four kinds of wines (22043092, 22043094, 22043006, 22043098 – mainly fortified kinds of wine) were for the first time included in the preference treatment regime and are taxed according to a reduced tariff. Customs tax on wine consists of ad valorem (percentage) and specific taxes. In conditions of GSP+ treatment ad valorem tax is equal to zero, and the specific tax remains at the level of the third countries’ one.
The facts witness that the main factor inhibiting the export of Georgian wine to the EU market is not import tariffs but the extent of Georgian wine’s fame, non-tariff requirements, lack of funds necessary for advertising campaign with the purpose of strengthening of its positions on the market and the exceptional taste of the EU consumers (in comparison with the that of consumers on traditional markets of Georgian wine).
Other promising products
Export of Georgian natural and mineral waters (commodity number 2202) has a serious potential on the EU market. In this respect it is important that the official recognition by the EU of Georgian natural and mineral water should take place the way it was the case with wine. GSP+ comprises water, including mineral one (220210), the customs tax for which was 6.1% according to GSP general treatment, and now it has zero taxation under GSP+.
The new GSP+ scheme is also favorable for the export of Georgian nuts, GSP general treatment implied the customs tax in the amount of 2.1%, and according to the new treatment it is equal to zero. A similar situation is with ammonium sulphate as well: according to GSP general treatment the tax was 3%, and under the new scheme – 0%.5
Georgia has a great potential from the viewpoint of agricultural products’ export (fresh fruit and vegetables, as well as the products of agriculture’s processing industry: jams, juices, spices, honey, etc). In this sphere exporters have problems related to certification and phytosanitation. In Georgia there is still no local body for certification of food products, which would be accredited on the EU market. That is why, exporters have to make certification by means of foreign bodies, which is related to additional financial expenses.
Besides the aforementioned, agricultural products have a great potential on the market of ecologically clean and biological products, though the certification problem is very acute here as well. With the purpose of obtaining the mark certifying that the product is ecologically clean and meets the European standards, it is necessary to go through a rather complex procedure in accordance with the requirements of the European Commission. Certification of organic products, unlike ordinary certification of products, represents a monitoring of the whole production cycle and has more aspects than general certification of products.
Proceeding from the stated above, there are considerable reserves for further development of trade and economic relations between the EU and Georgia, enabling of which requires carrying out of a complex of arrangements, among which especially important is information of Georgian entrepreneurs about the EU’s new scheme GSP+, translation of the abovementioned scheme into the Georgian language and carrying out of seminars and consultations on non-tariff requirements.
Official recognition by the EU of Georgian wine and conclusion of the agreement on wine trade between the EU and Georgia will be a new step for promotion of Georgian wine products’ export to the EU market. In this case the mechanisms (including certain preferences) for strengthening of Georgian wine’s positions on the EU market should be reflected, which, against the background of recent Russia’s embargo on Georgian wine, will give additional opportunities for widening of scales of Georgian wine’s admission to the EU market. At the same time, with the purpose of achieving success, the state, taking into account the best examples of international practice, should first of all provide for a full-scale enabling of the Law on Wine and Vine and complete control over the use of local place-names, which will seriously contribute to the struggle against falsification, improve quality of Georgian wine and, correspondingly, its prestige. Georgian wine-makers should resort to more aggressive and active forms of marketing and regularly carry out active presentation campaigns, which will be a precondition for rising of the demand for Georgian products in the wake of increasing of Georgia’s recognition in Europe.
Orientation for ecologically clean agricultural and food products will give Georgian entrepreneurs an opportunity of occupying a particular niche – while raising of the aforementioned sectors’ ecological standards will be a favorable factor for export orientation. At the same time, according to the EU’s requirements, it is necessary to solve the problem of certification of agricultural products. As to a full use of export of Georgian natural and mineral waters to the EU market, it is necessary to provide for an official recognition by the EU of Georgian natural and mineral waters, which requires joint efforts of the state and business.
Taking into account the new realities in relations between the EU and Georgia, with the purpose of provision for the effectiveness of Georgia’s participation in the “neighborly” policy as well as acceleration of the integration processes, intensification of relations with the EU and the development of trade and economic relations it is necessary to start consultations on conclusion of a free or autonomous agreement (similar to the ones with the Balkan countries and Moldova) between the US and Georgia.
In general, today especially important for Georgia is strengthening of its positions on the traditional export markets, along with diversification of export markets and adoption of the standards and norms on stable and predictable markets (first of all in the EU), which, in its turn, will contribute to raising of the Georgian export’s general competitive ability.