Georgia-EU free trade deal promotes cost-effective business

1 Sep 2014

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By Tamar Khurtsia from Prague

Economic Editor

Agenda.ge,1 Sep 2014 Tbilisi,Georgia


Nestled in one of the narrow streets in the heart of Prague lies a Georgian restaurant - owned and operated for the past three years by Georgian entrepreneur Nick Jachvliani. His is one of many Georgian business owners within the EU who will reap the benefits of the Georgia-EU free trade agreement, which comes into effect today.

The Georgia-EU Association Agreement, which includes the Deep and Comprehensive Free Trade Area (DCFTA) agreement means from today, September 1, Georgia and the EU will cancel all custom tariffs on products which meet EU standards.

Jachvliani believed as soon as the deal was implemented, Georgian products would become more widely available in Europe – and the dishes in his restaurant should become more Georgian.

Jachvliani’s restaurant "Tbilisi” captures the unique taste of Georgian cuisine and he shares these flavours to delight the taste buds of even the most critical gastronomists. But it’s not easy to replicate traditional Georgia dishes abroad as they relied on a variety of Georgian ingredients and to make dishes with products that originated in Georgia was very costly and in some cases impossible.

During our visit at the restaurant the waiter served Khachapuri, classic Georgian dish, but this was made with Czech ingredients. Due to the lack of Georgian products in the EU state, Jachvliani was forced to use local ingredients.  

"We could not import Georgian cheese to the Czech Republic, which is an extremely useful ingredient for making Georgian

Young Georgian entrepreneurial Nick Jachvliani, who grew up in the restaurant business believed even one smile matters in restaurant business. Photo by T.Khurtsia

dishes for example Khachapuri, because of the technical regulations that exists for exporting foods from Georgia to EU member countries,” Jachvliani said.  

However to overcome this problem, he said they bought milk from local farmers and made Georgian cheese themselves. This helped, "but it would be better to buy ready-made cheese originally from Georgia,” he added. Restaurant Tbilisi in Prague is just a few steps from Malostranské náměstí and Prague Castle Gardens. Photo by T.Khurtsia

"When you say to your client that Khachapuri, the most in-demand and popular Georgian dish, is made of cheese originated in Georgia it is sure to bring them back.”

"[The Georgia-EU Association Agreement] will make it easier and cheaper for us to buy Georgian products thus decreasing the price of our dishes,” Jachvliani said. This could stimulate more customers and in turn, improve business.

Currently, even Georgian wine varieties on the Tbilisi Restaurant menu are imported from Germany.

Jachvliani believed Georgia’s free trade would even reduce the cost of wine too.

Georgia’s Export Development Association calculated an example using Georgian wine exported to Poland - the biggest importer of Georgian wine.

Previously the exporter must pay €0.09 EUR per 0.75 bottle of wine (regular bottled volume) however from today this will be removed.

In 2013 more than 1,640 tonnes of wine (46,468 hectolitres) was exported from Georgia to Poland. In this case, the DCFTA would see exporters save around €608,730.

Winemakers are optimistically looking at the EU market and believe the free trade deal will help boost wine exports.

 Eka Khmiadashvili, export manager of Kakhetian Traditional Winemaking (KTW) said Georgia’s main trade partner countries in the EU were Germany, Latvia, Lithuania and Estonia. "Zero tariffs will decrease the prices on Georgian wine and increase competition in the market,” she said.

DCFTA – hopes and concerns

Georgia and the EU are preparing to launch the Deep and Comprehensive Free Trade Area (DCFTA) agreement from September 1, which will see the removal of barriers faced by economic operators, as well as the introduction of high standards of consumer protection.

Click here to see infographics about the EU-Georgia Free Trade opportunities.

No customs duties on goods and other benefits are believed to boost Georgia’s trade and exports with EU countries.  

Once the DCFTA is adopted, one of the main benefits for Georgian exporters is zero custom tariffs.

This will help boost Georgia’s trade volume with EU countries, said VilemSemerak, an international relations expert for the IDEA think tank at CERGE-EI in Prague.

"At the same time in such a situation, country intensifies trade mainly with big countries and with neighbours. But Georgia is a little bit far from the EU and it has a border with a very unstable neighbour like Russia, so that is a challenge for Georgia,” Semerak said.

Meanwhile Martin Pospisil, director of the foreign economic policy at the Czech Republic’s Ministry of Industry and Trade, believed the main problem for Czech exporters to Georgia was the distance and infrastructure.

"If Czech investors would like to export products to Georgia the easiest way is to export from Hamburg, Germany, by ship. At the same time investments are needed to improve the infrastructure,” Pospisil said.

He was confident free trade would increase between Georgia and the Czech Republic but said both countries would have to be "patient as it would not come overnight”.

"The turnover will be slow but initially exports will increase. From the first year I believe there will be an increase in exports from EU countries to Georgia and in some time it will go up in both sides,” Pospisil added.

He believed Georgia’s economic and political integration to the EU needed to go hand-in-hand with European Foreign Direct Investment.

"For stimulating foreign trade Georgia needs to attract foreign direct investments from EU countries.”

Industry insiders believed the standards and regulations Georgia must implement before it can fully experience the benefits of free trade with the EU may be "very painful and expensive” for the country but in the long-term it would be hugely beneficial for the country’s economy.

Zakaria Mazmishvili, who operates apple orchards, had his eyes on exporting to the EU market and said exporters would show an interest in his modern and new kind of apples. 

Because he has less education about the EU standards and technologies, he believed he would not be able to export the apples in EU markets.

Apple orchard; Photo by agrocom.ge

"I cannot export to EU by myself but my apples can be exported. I will grow apples and try to implement all the EU standards in my apple orchard. Both growing and exporting is impossible,” Mazmishvili said.

With more information about EU standards, he expected more Georgian farmers would enter the EU markets. He said competition was a major challenge in the EU marketplace.

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