Clash between Investments and Export in Georgia

Nino ArvelaDZe

Georgia faces number of obstacles on its way to EU. Internal factors cause significant part of challenges. Georgia’s government keeps its rough policy towards certain liabilities of action plan under European Neighborhood Policy.

This creates a new challenge to Georgia’s integration into the EU. For instance, if progressive changes are not implemented in a labor law of Georgia, clash between investors and exporters will be inevitable. It is true, that our blessed country has good water, fruits as well as vegetables; however we need to develop this God’s mercy. Without regulating the field of standardization, goods produced in Georgia holding unpopular certificate can not be exported – it will not earn confidence in any country. The same applies to the food law. Its enactment has been postponed till 2010. Georgian Director of Georgian-European Policy and Legal Advice Centre (GEPLAC) Mr. Kakha Gogolashvili discussed the EU Neighborhood Policy and Georgia’s prospects for joining the EU with us. GEPLAC renders high-level policy and legal advice to the government of Georgia: It invites foreign specialists who participate in improving legislative basis of Georgia. However, practical implementation of their recommendations becomes a problem quite often.
– ENP Action Plan for Georgia was adopted in November 2006. According to it indicated liabilities should be fulfilled in 5 years. What is the current situation like?
– Georgia and EU signed ENP Action Plan in 2006. Implementation of the plan began in 2007. It covers 5 years and 8 priorities, including promoting rule of law, good governance and respect for human rights and democratic institutions, economic development and reducing poverty, improving business environment, preventing and settling internal conflicts, settling legal, freedom and security issues, solving issues related to free movement of citizens, as well as regional cooperation, soling transportation and energy related problems.
– In 2006 Georgian side announced that it would fulfill imposed obligations in three year…
– It was just an announcement, it’s our country’s will and even if it is not fulfilled, nothing wrong will happen. Three years term expire by the end of 2009. Since then only one year has passed. Georgia as well as EU made estimations of first year changes.
– How was the firs year evaluated?
– Georgian side has decided to postpone certain issues.
– Namely which issues?
– Food security issues have been postponed.
– What were the reasons? Does this mean that they are of less importance to Georgia?
– Its a very important issue, however, it was not jet reflected in major priorities of Georgian government. It’s considered, that postponing the issue is possible, as there are some other more important priorities and therefore state resources are directed to other issues. Such as: employment, freeing business from corruption or canceling business barriers. The issues on the other hand hamper business development, but at the same time provide populations safety, consider their interests and health may be shifted back.
– Besides Food security what are other postponed liabilities of Action plan?
– The agenda does not include migration management issues, namely, migrants’ registration policy, bringing visa policy close to the EU standards. Generally, field of standardization is a problem. Georgian standard should be brought near to EU regulation level in all sectors. Improving standardization has temporarily stopped. We don’t have law on competitiveness either. To put it short, development of regulating field has stopped to certain extent.
– Does Georgia face the problems while implementing the Acton plan, due to which it becomes difficult to fulfill imposed obligations? Action Plan implies harmonization of Georgian legislation to EU legislation basis. However, it is not possible without implementing reforms. It’s often said that Georgia’s Laws come close to the EU standards, although population’s standard of living is not improving.
– I can provide an example – a few days ago a TV program was dedicated to a building/construction problem. People living in newly built houses do not have safety guarantees as current buildings use materials and technologies that do not correspond to international standards. This issue is directly connected to Georgia – EU relations. If Georgia wishes to integrate into the EU, same problems should be solved in all fields. The fact, that there is no body imposing standards on building and construction and then there is no regulating body, checking these standards does not comply with the way of managing this sector in the EU. The same applies to any other sector. Such as food security, sanitary and phytosanitary control services (protecting Georgia’s borders from taking diseased plants and diseased food products) being one of important problems.
– Georgia’s borders are not protected from importing GM food either…
– As for GM food, it is not forbidden in all countries, although it’s necessary to point it on a label – customers should be aware of what they are buying. However, there are certain GM products that are entirely forbidden in Europe. Permitted products’ labels should contain whole information. Georgian customers do not know what they are buying due to a fact that product’s label does not have a whole annotation.
– Who controls the fulfillment of obligations in Georgia?
– Besides Neighborhood policy there is the EU-Georgia Partnership and Cooperation Agreement. Its corresponding statement clearly indicates that Georgia shall endeavor to ensure that its legislation will be gradually made compatible with that of the Community. Article 43 distinguished certain fields. The approximation of laws shall extend to the following areas in particular: laws and regulations governing investments by companies, customs law, company law, banking law, company accounts and taxes, intellectual property, protection of workers at the workplace, financial services, rules on competition, public procurement, protection of health and life of humans, animals and plants, the environment, consumer protection, indirect taxation, etc. Works to strengthen links to the EU standards in all the above mentioned fields should have begun in 2000-2001. Government has adopted special program that would harmonize Georgian legislation to that of the EU. Unfortunately it did not cover many sectors.
– Which area became a problem? It’s known that Georgia’s labor law does not comply with SU standards.
– Georgia’s Labor law seems disproportionate not only to the EU. International Labor Organization’s experts estimated Georgia’s Labor code and remarked that they do not meet their labor conventions. Namely, there are certain significant articles – length of a working day is not indicated in the legislation, it is unlimited. Terms on dismissing employees are not defined, the issue of collective agreement that especially is related to professional unions, is also important. It’s not written in a labor code and their existence or absence is not fixed. As a result it limits opportunities of various professional unions, while they want to have collective agreement with employers on certain conditions. Due to absence of the above mentioned issued, employed becomes less protected. Employer gains more freedom and it can make an employed to agree the contract that does not correspond to high quality professional activity. Law regulates everything in Europe and employees working hours are strictly limited: eight hours per working day, 42 working hours per week.
– How are the drawbacks of Georgian Labor Law reflected on employment indicator?
– This actually becomes the major argument- if we would like to increase employment indicator, then we have to give maximum freedom to investor or to those who create jobs. Circumstances that may scare an investor should not be created in Georgia. Otherwise, he/she will choose to invest in some other country where he/she will gain more rights towards the employed personnel.
– So, is Georgian labor law directed to foreign investors?
– Yes, it is. But it has a short term perspective. It’s a very simple logic – we should create the simplest conditions to attract employer’s capital to Georgia. It concerns local as well as foreign employers, as new jobs must be created. Whether it is a right approach or not, is a different topic. If we talk about long term perspectives, capital of significant volume will not flow to the countries, which has uncivilized labor relationships. The law may be more flexible or liberal, but certain guarantees should exist for employees. The country that has no such guarantees becomes socially and politically unstable and loses trust. Absence of guarantees may lead to instability. Famous event of November 7 are good example of it. As a result, drawbacks of labor law may have negative effect on the country’s image and future. Moreover, it may present the country from a negative side to investor. Country’s attractiveness should include a balance; otherwise an investor may invest in a country like North Korea, where even the notion of human rights does not exist, although a danger appears from the government’s side. The second extreme is doing business within weak government, as the danger of social explosion and political instability appears. We may do our best to form liberal environment, but we should remember the doze of regulation being necessary for creating future stability guarantees in a society. Sooner or later working on this direction will begin. These approaches will definitely develop in the country, located in Europe and being close to the most developed geographic part of civilization.
– One of the major topics is GSP+, what will be outcomes of this regime? What challenges do we face in this respect?
– 14 countries use GSP+ regime nowadays including Moldova and Georgia from post Soviet Union states. GSP+ is nearly annulling tariff taxes. Tariff barriers are not annulled only on certain products of agriculture. The EU issues this regime to the countries, that have poorly diversified export goods and the number of range of their exported products to EU do not exceed five. Such exports must also account for less than 1 percent of EU imports under the GSP. It should be a country which will not cause any danger to EU market from competition point of view. GSP+ regime is issued to the countries that agreed to support the implementation of social and environmental policy approved by the EU. We were discussing the labor code. Complying labor code with international standards as well as bringing environmental protection legislation to international standards is one of the major requirements to get GSP+. When this regime was issued to Georgia in 2005, we indicated in application form that we would fully introduce international conventions in the area of environmental protection. Also, we would join conventions of international labor organization and would introduce its statements in our legislation. It was about Europe Convention against corruption. We would have kept GSP+ after 2008 if we have shown progress in all these directions.
– What is the situation like?
– The biggest problem appeared in relation to labor code. Environmental protection conventions are practically adopted. So called ‘Kartakhena’ protocol is remaining only. As for convention against corruption, we may be responsible that will be ratified by September-October 2008. Georgia’s government’s position towards labor code is quite rude and important consulting is being provided in this respect.
– Attracting investment and increasing export volume clash, this is in direct proportion to the country’s economic development. Which of them is considered to be more important by Georgian government? What decision are we expecting from government?
– Canceling GSP+ is a very negative fact. The exporters that had been using it will be issued other regime. The difference between the regimes may be not important (2-3%), but it really matters within high competitiveness. Canceling regime is a negative event from political point of view as well. Georgia is approaching the EU, canceling the supporting regime points to regress. It will make a negative influence on our relations. EU itself tries its best to convince Georgian government in the necessity of compromise. If labor code is certainly amended, then we’ll keep the right of the regime.
– Do you think Georgian government will amend labor code?
– It depends on elections outcomes, balance of power in a state and the type of policy following the elections. Legislative body was nearly paralyzed during recent months. It did not fulfill its functions and could not actually participate in a political life of the country. Let me mention once again that governments approach in this direction is quite radical and in my opinion political position of a different will is required to soften this radicalism. The chosen way is right, but there is extra radicalism in certain directions. It’s important to find a stable balance between Euro integration necessary requirements and liberal policy. In case of proceeding radical approach, Georgia will be damaged from European integration point of view.
– How is the creation of Poti free economic zone reflected on Georgia’s integration to the EU?
– There are certain countries in the EU that had free economic zones before entering the union and they kept these zones after joining as well. Creating economic zone in Georgia does not carry a special meaning, as we aren’t even candidates of being a member of the EU. Therefore it will not make a negative influence on relations. Free economic zone is a small part of the territory and it does not cover a taxation regime of the whole country. Free economic zone creates unequal conditions of competition and it will turn in into a problem if the country creates a high competition conditions to EU. Georgian can not create such difficult conditions to the European Union. If the free economic zone will assist the industrialization, modernization, development of the country as well as attrition of foreign investments and the growth of employment indicator, it will be a very positive fact. I believe the free economic zone is not designed for huge outcomes. It is more directed to solving local problems that is really important for Georgia. However, there is no doubt that Georgia globally needs different tasks.
– Which external and internal factors effect EU-Georgia relations?
– Russia’s factor definitely makes a negative influence. It’s obvious that Georgia’s and Russia’s strained relations creates certain obstacles to our relations with the EU. The same can be said about conflicts as political stability quite often defines the opening level to a country. Our country would have been politically much more stable without conflicts and it would be simpler to open our borders to EU citizens to carry out economic relations, trade etc. The fact that we still could not reach the democracy level corresponding to European standards is another obstacle. I couldn’t say that is greatly hampers our integration, as the EU sees progress. If one asks an ordinary citizen of Europe whether he/she supports Georgia’s integration to the EU, he/she will imagine Georgia as a country where political stability has not yet been reached, that has very high level of poverty, very low level of economic development, there are conflicts and Russia is constantly threatening the country, illegal migration dangers come from it, the same can be said about criminal situation – perhaps the situation settled from this point of view, but Georgian criminals have spread across Europe and it negatively effects European citizens’ mood. As a result, Europeans make a decision on Georgia’s integration into the EU or nominating Georgia as a candidate of joining the union. Neither human rights nor the Law are well observed in Georgia. Although, I would not like to deny the progress that takes place in Georgia. Georgia’s and the Georgians great will to share western values and to create a state based on these values as well as the tools that would meet international standards is positively estimated. Europe sees the Georgians will. The quick rate of implementing reforms in the country is certainly a positive point. They come to a decision that it is possible to implement changes in Georgia. We have overcome such challenges and we are under such a pressure that it is even surprising that EU is active towards Georgia. It tries within ENP or some other ways to be closer to Georgia. Recent events show that EU is much more active toward Georgia than to Armenia or Azerbaijan. According to EU forecast, Georgia should be one of the leading countries to reach success in Neighborhood Policy. Therefore, they try to estimate number of things positively.
– Taking pessimistic and optimistic calculations into consideration, at what period of time is it possible for Georgia to integrate in the EU? What will be the next stage if Georgia can fulfill all taken obligations by Action Plan in five years?
– According to the most optimistic forecast, Georgia may become the EU candidate state in 7-8 years. After being a candidate state, the country may become a member of EU in either 3 years, or it may 20 years. If we do our best, we will be able to become the EU candidate state in several years. If we can complete Action Plan in three years, negotiations on formation of new expended agreement will take the next two years and additional two years to ratify the agreement. This is the minimum that we necessarily need to go through to become a candidate. If Action Plan is fulfilled with positive outcomes and if our popularity will increase in the EU, chances grow. Investments and tourism greatly contribute to this achievement.
– Do you think Georgia will implement taken obligations in five years?
– Its already the second year. Food Law has been postponed till 2010. This implies that Georgian government does not plan to take any measures in this direction till 2010. There are some other points that we lack behind – migration, legislation on competitiveness, labor code, standardization; the latter is constantly being highlighted. This issue is worked on nearly all levels – foreign experts as well as local NGOs are focused on it. But we deal with more principal position; however it’s possible to smooth it, as there is no country in the world that does not develop these services. When they are aware aboard that there is no phytosanitary control in Georgia, there is no law on food safety, products made in Georgia cause certain doubt abroad. Even European certificate can not work in this case. What we have to do first of all, is to protect our citizens, then it will be easier to gain foreigners trust that will have a positive effect on export as well as Georgia’s economy.