Can Georgia Find the Backdoor for Exports into Russia?

A pending customs union involving Russia, Belarus and Kazakhstan could open a way for Georgian food products to get around a Moscow-imposed trade embargo.

The union, approved by the Russian government on May 14 and scheduled to take effect on July 1, would remove all customs checkpoints among the three countries; any product that enters Belarus or Kazakhstan would, in theory, be able to circulate freely within the troika’s market. Details have not been made public about how the union would treat member-states’ existing import agreements.

Georgia has free trade regimes with Belarus and Kazakhstan, which means that Georgian products can enter those two countries without customs tariffs.

Belarus, along with Armenia and Azerbaijan, last year was identified as a chief conduit to Russia for Georgian wine, water, fruit jams and tea. Such products are banned from direct import into Russia under Moscow’s 2006 embargo. [For details, see the EurasiaNet archive].

Members of Georgia’s business community confirmed to EurasiaNet.org that such covert trade does occur via third countries.

Georgian government advisers, meanwhile, are reluctant to make any predictions about how the planned customs union will influence Georgian exports.

“The idea of a unified customs area means the liberalization and removal of customs tariff barriers, and a Georgian product, once cleared at the Kazakh borders, can really be free of customs control within this unified customs zone,” noted Tamar Kovziridze, head of Georgian Prime Minister Nika Gilauri’s Advisors' Group for Foreign Affairs.  “But we cannot say it will guarantee a lifting of the Russian embargo.  I would never exclude that Russia could set new non-tariff barriers for Georgian products.”

Officially, the Georgian government is not conducting embargo-related negotiations with Russia or via intermediaries. Kovziridze stated that the onus rested with Moscow to lift the embargo since the decision was a unilateral one “based on verbal statements alone.”

Economic analyst Lado Papava sees as much risk as opportunity for Georgia in the customs union. He predicted that Russia, acting as the driving force behind the economic alliance, could push its partners to ban Georgian products. “And they [Belarus and Kazakhstan] can yield to Russia, the more so that none of them is a WTO [World Trade Organization] member-state,” he said. Under WTO rules, members agree to submit trade disputes to a panel for resolution; the process is supposed to take no more than 15 months, although independent settlements can occur. Out of the four countries involved, only Georgia is a member of the WTO.

Georgian business executives, badly hit by the 2006 embargo, speak in measured tones about the customs union. “We will not start negotiations with Russia [about allowing the return of Georgian mineral water exports] until this issue is settled on the governmental level, so as not to harm the brand again,” commented Borjomi Georgia General Director Zaza Kikvdze, whose company manufactures a salty, fizzy mineral water that is arguably Georgia’s best-known export within the former Soviet Union.

Kikvdze claimed that Borjomi exports are now at their pre-embargo levels; bottled water shipments are targeted mainly at Ukraine, Kazakhstan, Azerbaijan, Lithuania, Latvia and Estonia.

For at least one winemaker,  the picture is gloomier. Shalva Khetsuriani, president of the Association of Georgian Sommeliers and founder of the winery Khetsuriani Cellar, says he has tried to reorient exports to Japan and the Baltic states, “but [they] could not replace the Russian market.”

“The export of Georgian wine has been diminishing each year starting in 2006,” Khetsuriani claimed. Exports were down by 10 percent in 2009, he added.

Kovziridze, the government adviser, acknowledged that the Russian embargo cut into Georgian exports. But she still claimed that Georgian exports are increasing to other countries. “Yes, the Russian share of our exports decreased, but the share of other countries that are much more trustworthy trade partners increased,” she said.  “It is easier to calculate relationships with them for the long-run. Companies are focused on better quality and managed to diversify their markets.”

Export shares for Turkey and Azerbaijan – two key energy partners for Georgia – have increased steadily in recent years; for Turkey, from 14 percent of all Georgian exports in 2005 to 19 percent in 2009; and for Azerbaijan, from 9 percent in 2005 to 14 percent in 2009. Ukraine, popular for imports, nearly doubled its trade volume with Tbilisi since the embargo to 7.4 percent of Georgian exports in 2009. Armenia showed a similar increase.

Economic analyst Levan Kalandadze says that without Russia, Georgian trade could soon hit a glass ceiling. That’s because Georgian products still don’t measure up to European Union standards, and until they do, they are unlikely to penetrate deeply into the EU market (beyond the Baltics).  He estimated that it would be another six years at least before Georgian products were ready to compete in the EU. In the meantime, reentry into Russia may be the key for continued growth of Georgian exports.

Nino Patsuria is a freelance reporter based in Tbilisi.

Can Georgia Find the Backdoor for Exports into Russia?

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