Costs and benefits for Georgia after DCFTA negotiations: The presentation shows also recommendations for a successful approach with DCFTA negotiations with the EU. Tamara Kovziridze managed the Georgian team during the EU-Georgia DCFTA negotiations. She is co-founder, director and partner at Reformatics. Further information: Stakeholder Dialogue in Cooperation with the AHK Tunisia - Negotiating ALECA – Lessons Learned from the DCFTAs with Ukraine, Moldova and Georgia. Organizer: Bertelsmann-Stiftung in Cooperation with the AHK Tunisia Date: Wednesday, 27-28 June 2018.

1. Creating Your Successful Legacy
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Any use of this material without specific permission of Reformatics LLC is strictly prohibited.
Costs and Benefits of DCFTA:
The case of Georgia
Tamara Kovziridze
Partner and Senior Director, Reformatics
Chief Negotiator of DCFTA 2009-2012
June, 2018

2. 2
Contents
Costs and benefits of DCFTA
DCFTA
Negotiating structure
Recommendations for negotiations
www.reformatics.com
Georgia’s DCFTA with the EU

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4. 4
Contents
Costs and benefits of DCFTA
About Reformatics
Negotiating structure
Recommendations for negotiations
www.reformatics.com
Georgia’s DCFTA with the EU

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Distinctive features of EU-Georgia DCFTA
 EU-Georgia DCFTA is the most liberal one: the only DCFTA, which
embarks on full tariff liberalization, has no transition periods and Tariff
Rate Quotas (TRQs).
 Such an approach was offered by Georgia to the EU and the EU
reciprocated it will identical approach.
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Creating Your Successful Legacy
Full Tariff
Liberalization
 As a result of a deliberate approach by Georgia, if compared with
Ukraine and Moldova, Georgia has least obligations in terms of
legislative approximation (Georgia: 291, Ukraine: 339, Moldova: 386).
2
Reasonable
Regulatory
Obligations
 When embarking on DCFTA negotiations, Georgia’s trade and
economic regulation was widely liberalized and de-corrupted: thus the
challenge was to combine Georgian and EU regulatory approaches.
3
Combining
Liberal Approach
and DCFTA
Obligations

6. 6
Contents
Costs and benefits of DCFTA
About Reformatics
Negotiating structure
Recommendations for negotiations
www.reformatics.com
Georgia’s DCFTA with the EU

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7
Costs and benefits of DCFTA
Creating Your Successful Legacy
Benefits Costs
The DCFTA opens access to a 500 million market,
which increases trade volume with EU in long term
1
Positive influence on country image as a market
close to the EU
2
Possibility of diagonal cumulation between DCFTA
states (PEM Convention)
3
Attractiveness and confidence booster for
international investor community
4
5
Possibility to create economic/investment hub:
invest, process, export
6
Attracts other countries to sign FTAs with the prospect
of producing in Georgia and exporting to the EU
7
Complex business regulation developed for a 500
ml. market is challenging to be absorbed by a
transition economy
1
Loss of comparative advantage through legislative
approximation of major trade and economic
regulation – risk of loosing itს distinct feature as a
de-regulated and de-corrupted economy.
2
Compliance cost for business as well as the state
in the short- to medium-term: new rules and
institutions
3
Negative side-effects if and when the Government
uses DCFTA as a tool for its internal political
agenda and promotes certain policies justifying
them through (non-existing) DCFTA obligations
4
Has a positive political relevance, reinforces
Georgia’s EU aspirations

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8
Benefits of DCFTA: Further broader trade liberalization
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Invest
Process
Export
Georgia’s Free Trade Areas
Access to
2 200 000 000 +
market
Georgia’s Free Trade Areas
Georgia’s potential Free Trade Areas
CIS
Turkey
EU
China
EFTA
Hong-Kong
India
Israel
Before
DCFTA
After
DCFTA
Negotiation
inprocess

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9Creating Your Successful Legacy
 The European Union has been the largest
trade partner of Georgia even before the
DCFTA was signed.
 In the last ten years, average trade share
with the EU was 27%, while average export
share was 22%.
 As the Chart shows, this year (2018 1Q)
share of trade with the EU has increased,
however there is not yet a stable trend of
increase since DCFTA.
 Since 2014, the share of the Rest of the
World (RoW) in export has significantly
increased, mainly due to Chinese factor
(130% growth of exports to China).
Assessment of the first results of DCFTA (1/2)
EU
22%
CIS
51%
RoW
27%
EU
29%
CIS
38%
RoW
33%
EU
27%
CIS
35%
RoW
38%
EU
19%
CIS
36%
RoW
45%
2014 2015 2016 2017
Source: Geostat
Georgia’s export share after DCFTA by country groups
EU
22%
CIS
32%
RoW
46%
2018, 1Q

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10Creating Your Successful Legacy
Source: Geostat
Georgia’s trade volume by country groups, million USD
Assessment of the first results of DCFTA (2/2)
 Since the entry into force of the
DCFTA in September 2014, export to
EU has slightly increased - by 3% from
2014 to 2017 .
 Despite the increase of exports, no
visible change in the structure of
Georgia’s export to the EU can yet be
seen.
 Trade between the EU and Georgia
was increasing more rapidly in the four
years before the DCFTA (2010-2013)
than in the four years after its
application (2014-2017).
 DCFTA does not bring a quick impact,
however it is oriented towards long-
term results.
 DCFTA should be accompanied by
business environment reforms to
increase investment attraction and
make business and trade activity
easier.
Georgia’s export volume by country groups, million USD
30%
37% -17%
72%
3% 3%
-11%
13%
0
500
1000
1500
2000
2010 2011 2012 2013 2014 2015 2016 2017
EU CIS Rest of the World
DCFTA Period
DCFTA Period
13%
39%
12% 3% 4%
-9% 2%
2%
0
1000
2000
3000
4000
5000
6000
2010 2011 2012 2013 2014 2015 2016 2017
EU CIS Rest of the World
Source: Geostat

11. 11
Contents
Costs and benefits of DCFTA
About Reformatics
Negotiating structure
Recommendations for negotiations
www.reformatics.com
Georgia’s DCFTA with the EU

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12
DCFTA negotiations structure
Creating Your Successful Legacy
Government of Georgia
European Integration
Commission Chaired by
the PM of Georgia
DCFTA Chief Negotiator
DCFTA Coordination Unit
at the PM’s Office
Interagency Thematic
Working Groups
Working Meetings
- Makes strategic decision on DCFTA.
- Discusses relevant EU matters, agrees positions and makes decisions before submitting proposals
to the Government of Georgia, Parliament of Georgia and the EU.
- Members are Ministers, Heads of Agencies and Departments.
- Chief Negotiator is at the same time chief advisor to the PM and has regular contact and access to
him.
- Chief Negotiator supervises DCFTA coordination unit under the PM.
- Small and efficient DCFTA coordination unit functions as a delivery unit.
- It coordinates not only the process of negotiations, but also works on the content and acts as the
main liaison between the PM’s Office and relevant Ministries and Agencies.
- Coordination by the PM’s office is more efficient, as DCFTA requires various actions/decisions from
different Ministries and Agencies.
- DCFTA Coordination Unit includs experts for each field of DCFTA, whereby one expert coordinated 2
or 3 thematic areas.
- Interagency thematic working groups were created in key areas, such as SPS, competition policy,
TBT, etc.
- Thematic working groups prepared dossiers for the EU Integration Commission and the Government
- Regular working meetings to discuss policies, drat legislation and negotiating positions.
ChiefNegotiatorreportstoboth–The
GovernmentandtheCommission

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13
Georgia’s approach to DCFTA negotiations
Creating Your Successful Legacy
Detailed analysis and scrutiny of EU regulations and their
suitability for Georgia
Detailed study of member state experience to find
cases/precedents of legislative approximation appropriate
to Georgia
No copy-paste of EU regulations
(Unlike some countries)
Negotiation of long approximation (transition)
periods where possible (up to ten years)

14. 14
Contents
Costs and benefits of DCFTA
About Reformatics
Negotiating structure
Recommendations for negotiations
www.reformatics.com
Georgia’s DCFTA with the EU

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15
Recommendations for DCFTA negotiations
 The DCFTA should serve the broader goal of the country’s economic development and not be
the goal in itself.
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Creating Your Successful Legacy
 The DCFTA has the potential to yield positive results only if and when coupled with sound
economic and regulatory policies.
2
 It is recommended to strongly take into account local development challenges and specificities
when implementing DCFTA obligations.
3
 It is essential not to over perform when fulfilling the obligations and not to use the latter to
serve the government’s own political agenda.
4
 The DCFTA implementation process should be accompanied by an intensive dialogue between
the government and business community.
5
 It is recommended to look at regulatory reforms from business’s point of view.6
 The DCFTA implementation process requires a champion within the government, i.e. a
responsible person or agency that guides the process politically besides having the technical
expertise.
7

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16
Example of regulatory solutions suited to local context: Food safety
Creating Your Successful Legacy
 Food safety area is most challenging for Georgia as agricultural sector
has a strong social exposure and is therefore sensitive.
 Least regulated at the start of DCFTA process as Georgia abolished
excessive regulation in the context of institutional streamlining and fight
against corruption.
 Thus major legal and institutional pillars needed to be (re)created in order to embark on the DCFTA
process.
 Except for few products such as wines, waters and juices, and nuts, limited potential in the short run to substantially
diversify agricultural export to the EU. Therefore, excessive and quick approximation risks to result in high cost and
limited benefit.
 Thus Georgia’s approach:
• Gradual and careful legislative approximation
• Maximum use of possible derogation where appropriate: e.g. simplified
requirements for a) small food producers, b) traditional production and c)
geographically constrained areas
• Long implementation periods
• Involvement of private control bodies to encourage private sector development,
e.g. private inspection bodies accredited by the state legally possible.

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