TRANSFORMATION OF GEORGIA’S TRADE POLICY STRATEGY: FROM FRAILTY TO SUSTAINABILITY

The following article reviews the trade policies and practices of Georgia as well as Georgia-WTO relationship. The authors focus on Georgia’s recent economic performance, including Association Agreement (AA) with the European Union that contributed powerfully to stabilising Georgia's trade legislation and reinforcing domestic economic reform. The Association Agreement between Georgia and the European Union and its member States aims at Georgia's gradual economic integration into the EU Internal Market, through the establishment of the DCFTA, which should provide for far-reaching market access based on sustained and regulatory approximation. The study reveals the importance of the World Trade Organization, main trade agreements and arrangements with Georgia as a developing country. It demonstrates that effective trade stabilization in the WTO can be achieved by the implementation of specific WTO’s regulations on trade, economic and legal spheres. One of the reasons for the special success of the WTO is systemic exceptions for developed countries and states with special needs (country like Georgia) that contributes to the development of international trade through progressive liberalization and the comparative advantage of the states when carrying out trade. The example of Georgia shows very well that so far the country has not been able to actively apply all the advantages that can be used within the framework of international or regional organizations, at least for the simple reason that the country does not possess the appropriate infrastructure for bringing innovative products to foreign markets, and thus accumulate more economic wealth. This case study evidences and confirms that while the accession process to the WTO is challenging per se, it is part of a process of domestic reforms that triggers growth and economic benefits.


INTRODUCTION
Trade diplomacy is a prominent issue in almost every country's foreign relations. Georgia, as a part of the civilized world, despite the challenges, is involved in the process of economic transformation. Georgia has made sweeping economic reforms during the last years, developing from a nearly failed state in 2003 to a relatively well-functioning market economy in 2019. Georgia has achieved significant results in terms of curbing low-level corruption, streamlining an inefficient administration, eliminating unnecessary licensing requirements, improving the State's tax collection capabilities, liberalizing its trade regime and generally improving Georgia's attractiveness based on ease of doing business. However, progress has been coupled with shortcomings, particularly in the aftermath of the 2008 financial crisis and the war with the Russian Federation.
At the same time, it is notable that following parliamentary and presidential elections in 2012 and 2013 respectively, a peaceful transfer of power took place for the first time in Georgia's modern history. Since 2012, the Government has broadly continued the previous Government's low-regulation, low-tax free market policies while modestly increasing social spending. Also, the Russian Federation lifted its embargo on Georgian wine, mineral water and certain agricultural goods in 2013 that had been in place since 2006. The Russian embargo made it clear that modern challenges in Georgia's trade relations required greater diversification in order to avoid and prevent potential threats in the future. Following the signing of the Deep and Comprehensive Free Trade Agreement (DCFTA) with the European Union, the export of Georgian products and their competitiveness in the world market became particularly important (Abuseridze, 2020).
Given this context, the article raises several questions on economic transformation of Georgia. What are the benefits of Georgia's WTO membership for the EU and Georgian businesses?
In order to answer these and many similar questions the authors will analyze Georgia's main trade agreements arrangements and other important issues.

Main trade Agreements and Arrangements
Trade liberalization is one of the key objectives on Georgia's economic policy agenda. After Georgia's integration into the WTO, country undertook a large number of reform initiatives targeted at streamlining, liberalization and simplification of trade regulations and their implementation. Following the Rose Revolution in 2003, the Georgian government increased efforts to reduce corruption in public and private sector and sought to meet international standards. These efforts resulted in significant improvements in Georgia's ranking in the World Bank's Doing Business Survey. Between 2006 and 2019, Georgia jumped from 112 th place in the overall rankings for ease of doing business to the 6th (World bank, 2019).
One of the strategic initiatives is to develop Georgia's trade-transit function. The framework has been established that is intended to allow investors to conduct processing activities in Georgia in connection with the transit of goods without being subject to Georgian taxes (Georgian National Investment Agency, 2021).
As regards main trade agreements and arrangements -after gaining independence in 1991, Georgia's economy collapsed and it is the only country in the South Caucasus and Central Asia that has not reached its pre-independence real GDP level; as of 2013, Georgia's GDP was estimated to be 80% of its 1990 levels (World Bank, 2014  The key event of this review period occurred in June 2014, when Georgia signed the Association Agreement (AA) with the European Union. The AA includes a Deep and Comprehensive Free Trade Area (DCFTA), which plans to enhance Georgia's trade prospects and boost economic growth by bringing its legislation closer to that of the EU. It also removes the existing barriers on the trade of goods and services with the EU. Georgian products have to meet certain EU requirements not only for export, but also when consumed within the country.
The authors explain that this study does not aim to explore the hierarchy of legal norms proceeding on the relations between the WTO and EU or their interdependence; rather it focuses on the entries in the Association Agreement between Georgia and the European Union which refer to Georgia's compliance with the WTO obligations and their superior power.
In accordance with Article 1 of the Association Agreement, the goal is to achieve gradual economic integration of Georgia into the EU internal market that will ensure reliable market access based on sustainable and comprehensive regulatory convergence of rights and obligations arising from WTO membership. The signing of the Association Agreement with the EU sends a very positive message to the markets, and helps to promote exports to the area from 2014-2019 (Trade/economic structure and trends see below Figure 1.) onwards, which creates a practical framework for achieving EU-Georgia political association and trade Europe as it presently depends on Russia to meet its energy needs. Deeply cognizant of this, Russia uses its energy resources as a political bargaining chip. Indeed, as the South Caucasus region belongs to the energyrich Caspian region, it is advantageous in the long-term for Europe to diversify its energy resources and energy partners. The authors argue, that this perspective adds extra stimulus to the development of Georgia into a trade transit corridor. Legislative amendments have taken place in several trade-related areas. Georgia has continued to develop its national quality infrastructure in accordance with international and EU practices. Its TBT strategy stipulates that Georgia refrains from adopting national standards in the areas where relevant international standards exist.
About 98% of all standards adopted in Georgia are international or European standards (World Trade Organization, 1999).

Georgia's Accession Process and the Implementation of its Commitment
The process of obtaining Membership of the WTO is complex and implies many challenges for the countries wanting to join and hence the long average duration. Once that goal is achieved, the practice shows that WTO membership creates significant new opportunities. This perhaps best explains why, since the WTO was created in 1995, a total of some 36 countries have taken the initiative to join the WTO and successfully completed the accession process nearly two dozen more are presently negotiating their accession.
Georgia was one of the countries that shortly after becoming an independent state launched the process of  2. Trade policy liberalization, including simplification of export and import procedures and tariff and non-tariff regulation; 3. Diversification of trade relations by establishing preferential regimes with main trade and regional trade partners; 4. Enhancement of transparency in the policy-making.
In order to pursue these objectives and as a new and Recently Acceded Member (RAM) of the WTO, the main challenges for Georgia consisted of continuing the reform process initiated during the accession process.
It is considered to be the only way to take advantage of the benefits that WTO membership offers and to Fiscal and tax reforms: Some of the main reforms that were put into effect included the corporate income tax reform, enhancing easiness of tax compliance, enhancing stock exchange activities, the development of local capital market, a reform of the pension scheme, based on a private pension system, the introduction of transparent and efficient public-private partnership (PPP) framework, the creation of a public investment management framework, which should lead to an improved efficiency of state projects, stimulating private savings, strengthening the public trust in the financial system, enhancing the transparency and financial accountability and strengthening the protection of shareholder rights (European Commission, 2021).
More specifically with regard to tax and fiscal legislation, the Georgian tax system was simplified and tax rates were reduced. An easily administered, flat, and simple tax system was introduced. The number of different taxation schemes was reduced from 21 to only 6 types of taxes. These include corporate income tax, personal income tax, property tax and indirect taxes such as VAT, excise, and import duties. A new tax code entered into force on January 1, 2011, which incorporates both the tax and customs codes. Further improvements and innovations included the introduction of the status of micro, small business, the establishment of a Tax Ombudsmen, and the principle of good faith. All measures further strengthened the principles of transparency and accountability. Furthermore, the Georgian business licensing system was modernized and simplified and 'unnecessary' regulations, which often turned out to be a source of corruption were abolished. The number of licenses and permits necessary for doing business was reduced by almost 85% and the "single window" and "Silence is Consent" principles were introduced. Accession of WTO contributed powerfully to stabilising Georgia's trade legislation and reinforcing domestic economic reform and therefore increasing the stability and predictability for EU businessmen exporting to, or investing in, Georgia. It is believed that Georgia's medium-term growth prospects depend on a number of factors, including its ability to take advantage of the free trade agreement with the EU. Georgia has conducted major structural reforms in order to achieve all its key objectives, i.e. the integration into the world economy, including the implementation of WTO membership obligations and obligations under other international agreements, trade policy liberalization, including simplification of export and import procedures and tariff and nontariff regulation, diversification of trade relations by establishing preferential regimes with main trade and regional trade partners and finally enhancing of transparency in the policy-making. These objectives for the major part continue to have the attention of the government and in many ways are considered as work in progress. Through its active participation in international trade, Georgia aims to diversify exports and benefit from MFN treatment granted by WTO members. Today Georgia is an active Member in the WTO, and has made substantive inputs in the negotiations of the DDA, including with specific text and negotiating proposals on technically complex issues with a view of directly serving its economic and trade interests at the multilateral level. It will actively continue doing so in pursuit of its economic development policy objectives.
The WTO is described foremost as a trade-economic partnership-type institution with 164 member states. This is also advantage for Georgian exporters who will be better able to ensure their rights in doing business worldwide.
However, the authors argue, that there is a gap in the text of the Association Agreement in regard of the WTO; in particular, the Organization is referred to rather inconsistently and it seems that there is no unified vision on the name of the organization. The author believes, that the state should decide how to denominate such an important organization in the official documents, based on common practice of using terms of legal acts.

CONCLUSION
The analysis of the process of Georgia's economic integration into the EU leads to the conclusion that in this respect Georgia has no enforcement problem ensuing from concomitant obligations for one reason: the text of Georgia's Association Agreement repeatedly stresses respect for the WTO principles and treaties and their preferential legal force in the case of collusive norms.
The authors believe that one of the reasons for the special success of the WTO is systemic exceptions for developed countries and states with special needs that contributes to the development of international trade through progressive liberalization and the comparative advantage of the states when carrying out trade. This is especially important for a country like Georgia.
According to the authors, the example of Georgia shows very well that so far the country has not been able to actively apply all the advantages that can be used within the framework of international or regional organizations, at least for the simple reason that the country does not possess the appropriate infrastructure for bringing innovative products to foreign markets, and thus accumulate more economic wealth.
The authors claim that it is necessary for the state to take responsibility for the relevant procedures and promote the production of services or products in the country, in which the country will take its niche in the international space.
Finally, and to conclude, this case study evidences and confirms that while the accession process to the WTO is challenging per se, it is part of a process of domestic reforms that triggers growth and economic benefits. WTO's membership doesn't automatically lead to economic gains, which can only be obtained through hard work, a strong and continued commitment to undertake domestic reforms and put the right policy conditions in place to trade and attract FDI. It requires a vision, a strategy and a clear understanding of the country's potential and the political will and determination to put all the elements and conditions in place to create synergies.