Free trade, free love

By bne IntelliNews February 13, 2012

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A possible free-trade agreement between the US and Georgia is buoying hopes that the tiny South Caucasus nation can tie trade to greater political support from the US and the EU, which it deems vital to extricating itself from Russia's sphere of influence.

The meeting between US President Barack Obama and Georgian President Mikheil Saakashvili at the White House on January 30 was largely perceived as a gesture of appreciation for Georgia's commitment to Afghanistan - and its vote to accept Russia into the World Trade Organization (WTO).

While Saakashvili didn't leave Washington with his two biggest priorities met - joining Nato and receiving US arms - he said a free-trade agreement would "basically help [Georgia's] nation-building process" during remarks following his meeting with Obama on January 30 at the White House. "It's very important that you mentioned... [the] prospect of a free-trade agreement with Georgia, because that's going to attract a lot of additional activity to my country and basically help in our nation-building process," Saakashvili said.

President Obama said the "possibility" of a free trade agreement would be a "win-win" situation for the US and could help increase American investment in Georgia.

Increasing trade is vital for Georgia as it grapples with falling foreign investment and a growing trade deficit. In 2011, the deficit was $4.86bn, a 32% increase from last year, according to official statistics. And a trade deal with the US would be a direct way to help Georgia increase its exports to there. Last year, Georgia exported $143m worth of goods to the US. While it enjoys reduced trade duties under the US General System of Preferences (GSP) program, the majority of exports are currently iron alloys and fertilizer.

A free trade agreement, which also tackles the non-tariff barriers like regulations that stifle trade, could help Georgia replicate the success of other developing economies. Export.gov, the US government site dedicated to trade, reported that 41% of US trade went to countries with free-trade agreements.

Washington has flirted with starting trade negotiations with Tbilisi in the past, but concerns about the country's lax protections on intellectual property rights, as well as its ultra-liberal labour code and the small market size, have been named as obstacles. To secure a trade deal, Tbilisi would likely have to make "concessions" to the US as well, notes Zurab Japaridze, chairman of the Institute of Strategy and Development, particularly on its labour code, which has come under fire from the International Labor Organization (ILO), as well as the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO).

Georgia is already involved in trade talks with the EU; the two sides spent 18 months in pre-negotiations and Tbilisi was asked to make a number of changes to its anti-trust law, as well as the labour code. Official talks are set to start in the spring and more reforms are expected.

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