Issue 6, 2015. December-January


Why the Time is Right for a USA-Georgia Free Trade Agreement

On october 30, the Deputy Prime Minister of Georgia giorgi kvirikashvili met with the US trade Representative, Ambassador Michael Froman. In support of this meeting, AmCham wrote to Ambassador Froman as well as to the US Senate and the US House of Representatives. Sarah Williams also wrote a version of the following piece for the US Congressional Newspaper, 'the Hill'.

Sarah Williamson,
President of the American Chamber of Commerce in Georgia

In October, Georgian Deputy Prime Minister Giorgi Kvirikashvili met with US Trade Representative Michael Froman to conduct a high-level trade dialogue. Many of us in the American -Georgian business community hope that this will lead to the beginning of negotiations on a US-Georgia Free Trade Agreement (FTA). Opening such negotiations would increase opportunities for American businesses to export to and invest in Georgia. Because of Georgia's Free Trade Agreements with the EU and its neighbors, this would provide US firms with increased access to Europe, Turkey and wider Eurasia, and ensure the US a significant strategic and economic place in the fast-growing New Silk Road. At a time when 'Westernization' is under pressure in the region, it would also be a tangible political signal of continued US support for Georgia.

US exports to Georgia, at $300 million in 2014, is significant and largely concentrated in machinery and cars. However, there is evidence of fast expansion in others areas. In the last two years, fast food chains like Wendy's, Dunkin Donuts, Domino's Pizza, Burger King, Taco Bell, KFC and Subway have all appeared on the Georgian market for the first time. Clothing retail is also expanding fast including storefronts for Gap, Banana Republic and Tommy Hilfiger.

US Deputy Secretary of State Antony Blinken and Deputy Prime Minister of Georgia Giorgi Kvirikashvili

Large infrastructure projects and government procurements also offer sizeable opportunities for US firms.Projected investment in hydropower is $4.1 billion over the next few years. While US investors are prominent in developing investments, Asian and European firms have been winning the large engineering and construction projects. The government is also currently selecting the final consortium to build a new port in Georgia, which could represent a $5 billion investment over the next 10 years. The US firm Conti Group is on one of two final consortia. American companies are also participating in projects from medical facility development to waste management.

An FTA between the two countries would not only aid these companies in exporting American products and machinery to facilitate these projects, but would also greatly encourage other American companies looking to expand into the region.

Georgia has worked hard to become a viable partner to its Western counterparts. The country is already a hub for the region, with low corruption, a simplified tax system, bi-lateral trade ties with its neighbors and a business-friendly legislative environment.

In the technology sector, the government of Georgia recently signed an agreement with Microsoft to respect intellectual property rights. The deal, worth $20 million, is unique in the region, but it is just the beginning of a series of measures aimed at intellectual property protection that could open up the country for ICT sales and investment.

Business opportunities that follow from an FTA also move significantly beyond Georgia's borders. Georgia's economic and strategic importance as a transit route for oil and gas supplies has never been so important, since the country offers the only route from the Caspian to Europe that does not go through Russia. A BP-led consortium is in the process of tripling the capacity of gas that is transported across the country, with a pipeline upgrade that represents a $2 billion investment in Georgia alone.

As important as Georgia is in the energy transportation world, the country is not only valuable as a transit route for oil and gas. A "New Silk Road" transit route is quickly emerging between Europe and Asia, and Georgia is supporting this with heavy investment in port, road and rail infrastructure.

The recent Silk Road Investment Forum, hosted this October in Tbilisi, saw over 500 companies visit the country to investigate ways of utilizing Georgia's location and trade-route potential. Interested companies came from 34 different countries, including the USA. The Silk Road will enhance and expand Georgia's role as a natural regional business center.

Offering a "force-amplifier" to these benefits, Georgia signed an Association Agreement, including a Deep and Comprehensive Free Trade Agreement (DCFTA), in June of last year. This is enhancing Georgia's Westernization of the business environment by requiring approximation with EU standards and processes and should make it easier to establish a US-Georgia FTA. At the same time, it will give Georgia free-trade access to the EU for the goods and services it produces. This will further enhance Georgia's attractiveness for businesses that want to gain access to the EU market and will make Georgia a more comfortable place for Western countries to set up businesses with a view to other regional or silk-road markets.

An FTA with Georgia is also unlikely to create any significant new competition for US companies. Manganese makes up more than 80% of US imports from Georgia. This is mined and processed in Georgia by a US company that does not compete with US producers.
Politically, opening negotiations on aFTA, would send a signal of continued material support for Georgia at an extremely important time. Georgia's track record of reforms to fight corruption and improve the business environment has been widely acknowledged. However, more recent reforms have not garnered the recognition that they deserve.

In a region where human rights and rule of law are often ignored, Georgia has remained a rare bastion of democratization, Westernization and transparency. A pre-election assessment from the National Democratic Institute in 2013 found that Georgians now "enjoy an electoral environment shaped by the fundamentals of democracy: the first peaceful transfer of power through the ballot box; a credible political opposition; a parliament characterized by meaningful debate and decisions; an increasingly independent judiciary; and a lively media environment." Entering into discussion about a Georgia-US FTA would acknowledge this success.

Such visible support is particularly important as Russian continues to pressure Western-oriented governments in the region. While the Georgian government remains committed to Euro-Atlantic integration, there are forces inside the country that would dearly love to see that orientation come to an end. Efforts to undermine the Western trajectory play on local dissatisfaction with the slow pace with which Western integration occurs. In particular, after many years of efforts, Georgia's failure to gain NATO's Membership Action Plan (MAP), have started to cause "NATO and Euro-Atlantic fatigue." Of course, the US can't deliver NATO or EU membership. However, opening negotiations on a US-Georgia FTA is a bilateral step that would be an ideal signal of support for Georgia's continued Westernization agenda.

At a time when Georgia is at risk, this FTA negotiation would also provide a platform for revitalized bilateral engagement and a mechanism to encourage increased US commercial engagement in the region. It would therefore open up opportunities for US companies and boost the argument for Westernization, just when Georgia needs it the most.