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Agreement by association: Georgia edges closer to Europe

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Georgia’s signing of the Association Agreement with the EU has been welcomed by the country’s people and its elite, but it will likely not be the panacea they hope.

 

Stephen F Jones
19 March 2015

On 27 June, 2014, Georgia, along with Ukraine and Moldova, signed a formal Association Agreement (AA) with the EU, which both sides hope will increase diplomatic, economic and political ties between the EU and its neighbours. The EU brought the signing ceremony forward after Russia’s annexation of Crimea and against a background of worsening conflict in Ukraine’s east.

Days later, on Tbilisi’s Europe Square, the Georgian Patriarch joined a jubilant Georgian Prime Minister and President in a rare joint appearance to give joyous praise of Georgia’s reunion with Europe. Before a massive audience and against a backdrop of Georgian and EU flags, opera singers and dancers celebrated what the Prime Minister called an irreversible union after hundreds of years of ‘artificial’ separation.

Georgia's choice

For many Georgians not on the square, and who may not have heard of the AA (and a Caucasus Research Resource Centers survey in 2013 suggested 79% of them hadn’t), the question was: what would the agreement bring them?

Was it just another ritual assertion of unity and progress? Like the European Neighborhood Program and the Eastern Partnership, would it bring promises of greater integration, but without membership, security or concrete economic improvements? Were ordinary Georgians looking at a bronze medal - a long period of structural reform from above, but with the pains of adjustment, as usual, coming from below?

For most Georgians, the AA’s outcome is not about geopolitical narratives of east versus west: they are concerned primarily with the impact on their daily lives. That’s the real test of the AA. Will it strengthen the Georgian economy, improve the accountability of the Georgian government to its citizens, and bring greater security in the future?

The AA is, of course, a political document as well as an economic one. It is about Georgia’s domestic and foreign policy orientation. That is certainly how Putin perceives it and how Georgia’s elites portray it. The AA will pull Georgia and Ukraine into a tighter embrace with Europe, and although there is no pot of gold at the end of the rainbow (as there was for the eight central and eastern European aspirants in 2004), the AA represents Georgia’s ideological commitment to Western models of pluralism and diversity. This is why Armenia and Azerbaijan did not sign - and quite frankly should not have been asked to sign, given their poor democratic record.

The AA was an acknowledgement that Georgia deserved a privileged association with European democracies, although the agreement insisted on further measures to consolidate Georgian democracy and integrate its national minorities. The decision to sign reflected the views of the vast majority of Georgian citizens who, though not well informed about the realities of the agreement, have declared in countless polls their desire to be closer to Europe. This cannot be said so emphatically about the citizens of Ukraine and Moldova.

For most Georgians, the AA’s outcome is not about geopolitical narratives of east versus west

Cui bono?

But the economic benefits are not as clear-cut or evenly distributed as some may claim. The AA includes a Deep and Comprehensive Free Trade Agreement (DCFTA). In its Trade Sustainability Impact Report (TSIA), published in October 2012, the EU claimed the DCFTA would ‘in the long run’ increase Georgia’s GDP by 4.3%. The phrasing calls to mind the economist John Maynard Keynes, who noted, ‘this “long run” is a misleading guide to current affairs. In the long run we are all dead.’

The TSIA estimated a whopping 62% increase (in relative terms) in Georgia’s output in chemicals, rubber, and plastics as tariffs and other technical barriers tumble. Georgian exports to the EU would increase by 12% and imports by 7.5%. Georgia’s agricultural products would – in theory – become more attractive as import duties worth 5.7 million euros are removed.

These are heartening estimates, but are they accurate and based on a well-founded knowledge of the Georgian economy? Will Georgia’s trade deficit decrease, will life in the village improve, will unemployment diminish, and will the new legislation work in the way it’s supposed to? The TSIA admits, despite possible improvements in wages overall, there will be greater inequities, particularly among the bottom 10% of income earners (single mothers, farmers, pensioners). It is also likely that some businesses will focus on Russia to avoid the DCFTA regulations, thereby increasing Georgian economic dependence on a powerful, manipulative neighbour.

The DCFTA is not a quantum leap for Georgia, nor is it a panacea. ISETEconomist has pointed out that, in 2015, Georgia already benefits from low tariff barriers through the EU’s Generalized System of Preferences (GSP+), and pays no duties on 75% of its tariff lines. Only 21% of its exports go to the EU; far more go to the other ‘bloc’ – its post-Soviet neighbours. So the question is not so much how the EU will help after the AA becomes reality - Europe will undoubtedly provide funding and investment as a result of the DCFTA - but whether and how Georgian business can help itself in an even more competitive environment.

The DCFTA is not a gift to low and middle-income countries like Georgia, it is an instrument that works in two directions. It gives Georgia access to EU markets but also encourages European businesses to expand into the Georgian economy. This is good for Georgia, but the AA and the DCFTA are domestic challenges for Georgian businesses and the Georgian economy. The DCFTA can work against the interests of the Georgian consumer and Georgian employer, as well as for them.

Visa liberalisation - an important feature of the AA - illustrates this potential ambivalence. It will surely benefit less skilled Georgians seeking employment abroad (educated Georgians already have fewer problems obtaining visas for European countries), but it was accompanied - with strong support from the EU - by a new immigration law introduced in Georgia in September 2014, which tightened visa and employment restrictions for non-Europeans entering Georgia.

This law has had negative impacts on Georgian businesses with employees from Asia and the Middle East, as well as for foreign students who contribute financially to Georgia’s poorly funded higher educational institutions, especially its medical schools. The new immigration law has made Georgia’s business and trade connections with non-European partners more complicated. What one hand giveth, it seems, the other can taketh away.

Remedies in ourselves do lie

The AA is an instrument of EU foreign policy. It is designed to tame and integrate its neighborhood. The goal is to promote good behavior on the EU’s borders, to reduce conflict and refugee flows, and to strengthen democratic rule and stability in the periphery. It is the most concrete program of integration Georgia has been offered. It establishes important standards for human and civil rights and will raise Georgia’s standing in the EU.

But will the AA accelerate economic development, provide better national security, reduce the threat from Russia, and open the gates to EU membership? Or will it expose, as outside models often do when introduced rapidly and formulaically, the weaknesses of local business, reducing its capacity to thrive and provide jobs?

Georgia’s relationship with Europe, even in the early 21st century, is equivocal. Georgia has many friends in the EU - Poland most prominent among them - but is that enough to counter strong resistance among others, like Germany and France, to deeper involvement of the EU in a country in Russia’s long shadow?

The EU's reluctance to fully engage Georgia could have an effect on Georgians’ enthusiasm for the EU. According to Caucasian Barometer, the number of Georgians who trusted the EU decreased from 43% to 33% between 2012-2013. These numbers can be reversed if the EU brings real results to the Georgian economy and provides security.

But will it? The AA is a step toward European integration, and probably the only choice Georgia has. But Georgians’ experience in the last two decades should remind them that, as Shakespeare puts it, ‘remedies … in ourselves do lie’, and not in powerful outside patrons.

Image: Gonçalo Silva via demotix. All rights reserved

To read more about the challenges facing specific EU candidate countries, click here.

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