Issue 2, 2014. April-May

   

THE ROAD TO A FREE TRADE AGREEMENT WITH THE US

Georgian Prime Minister Irakli Gharibashvili met with US President Barrack Obama in Washington in February. The meeting, albeit brief, is an encouraging step for Georgia as it moves toward a free trade agreement with the US, analyst Łukasz Ponczek writes.

Prime Minister Irakli Gharibashvili's February 24 meeting with US President Barack Obama bolstered Georgia's goal of signing a Free Trade Agreement (FTA) with Washington. Now, however, the country needs to focus on strengthening economic ties between the two countries and diversifying its exports to the United States.

Currently, the United States is not one of Georgia's top trading partners. In 2012 the US was Georgia's second top country in terms of products exported and sixth top in terms of products imported. Georgia had a negative trade ratio with USA of about $120million. Considering the significant geographical divide, the trade situation between the two seems satisfactory; upon closer consideration, however, it is clear that there is a lot of room for improvement.

Unfortunately, Georgia's export to the USA is very homogenous. Nearly all of it consists of only two types of commodities. Almost 70%, is the export of iron, and a quarter of the export are fertilizers and chemical products. Secondly, last year, the trade between the two countries has not only significantly shrunk, but also the negative, for Georgia, trade ratio gap widened, since the American market faced competition from other countries for Georgian goods. Other high quality Georgian products have potential to sweep the American market, including for example Georgian wine or water. However, the American consumer is by and large completely unaware of the existence of Georgian products, and the country faces stigma of being a post-Soviet republic, and therefore the market for such goods remains undeveloped. The recent action of both governments brings hope of enhancing economic relations. For example, in January 2009 the US and Georgia signed a strategic partnership aiming to deepen the ties. In January 2012, Obama and Saakashvili initiated negotiations to sign the FTA. However, 2012 and 2013 changes of power might have put in question whether the new government is still committed to a close relationship with the US.

However, the February visit of Prime Minister Irakli Garibashvili to the White House has obviated those uncertainties, and confirmed that Georgian Dreams stays loyal to the alliance with the US. It is also a sign that the efforts to finally complete the Free Trade Agreement have been accelerated. During the visit, John Kerry declared that: "We [...] commend Georgia's progress on economic reform, and we urge the government to quickly implement its plans to spur trade and investment, including with the United States. [...] The United States remains committed to strengthening our trade." Such statement might be more than just mere courtesy; after all it is not unreasonable to expect the FTA to be finally signed after the years of negotiation. Recently, in case of Panama, Colombia, and South Korea, it took the US more than five years from the start of the negotiations to the signing of FTAs.

US political analysts James Roberts and Ariel Cohen, however, maintain that there is no reason for the negotiations with Georgia to be so lengthy. First off all, Georgia is a relatively small country, which should simplify negotiations. Secondly, both countries are already quite free when it comes to the international trade. Thirdly, international exchange between the US and Georgia is fairly modest for both, and for the US, Georgia is only a minor trading partner.

Despite the custom dues being relatively minuscule amounts, the FTA could still accelerate the trade between both. In recent years, customs paid by Georgian businesses constituted less than 1% of the overall trade exchange. However, the FTA is more than just freeing up trade completely. It is an important sign for corporations that exchange between two countries is stable and simple.

The US is a crucial partner for the stability of Georgia, both economic and political. Both countries have expressed declarations of cooperation, and even under the new government, Georgia is trotting along toward strengthening the two country's ties. However, the economic relations of Georgia and the US are still fairly weak, signing of the Free Trade Agreement would cement the current exchange and pave the way for new investment. Diversifying the portfolio of products exported from Georgia to the US would benefit both countries. The recent visit of the Prime Minister of Georgia to the US is another step towards achieving that goal.

Łukasz Ponczek is a M.A. graduate from the University of Aberdeen (UK). He spend a year in Georgia with the TLG program. Currently he works for an energy consultancy company in Poland.

Latest Issue (pdf format)




Recent Issues






See more in our archive>>>