Georgia moves closer to EU with proposed laws on free trade, competition

By bne IntelliNews October 12, 2011

Molly Corso in Tbilisi -

A new draft law on free trade and competition could move Tbilisi closer to a free trade agreement with the EU, while at the same time combat persistent allegations that its laws have allowed monopolies to feed off Georgia's liberal economy.

The draft law, tentatively slated for discussion in parliament by the end of October, is a gesture to the growing demands to tighten regulations on the Georgian economy. If passed, it would define criteria for a dominant company in any given sector, as well as what constitutes as abuse by a dominant company. It also foresees a competition agency and regulation over company consolidation like mergers and acquisitions.

The law on monopoly and competition was scrapped following the 2003 "Rose Revolution" as the number of regulatory bodies was slashed and economic reforms kicked in. While government policymakers argue there are no monopolies in the Georgian market, economists and watchdog organisations like Transparency International maintain the government has allowed monopolies to flourish as a result of its anti-regulation policies.

Natia Kutivadze, an analyst for Transparency International Georgia, notes that no provisions were made to fill the legislation gap that prevented monopolies from taking hold - a vacuum that helped businesses work together to close out new competition and control prices, she claims. "In Georgia... there are no effective legal barriers [to stop them]," argues Kutivadze, adding that by restricting new players in the market, these monopolists can engage in price discrimination.

The pharmaceutical industry, petroleum import and sugar imports are among the most widely perceived monopolies in the country.

Open for business

Vato Lejava, chief advisor to Prime Minister Nika Gilauri, however, argues that the widely held perception that monopolies flourish in Georgia is a misconception. "There are no monopolies in Georgia is the sense popular sentiment or anecdotal evidence suggests," he says in an email. "All those markets have more than three to four payers and relevant markets are dynamic. Even the regulated markets (eg. mobile communication) with high entry barriers, with very few players, are with fierce competition clearly."

Indeed, Lejava cites official studies, such as the 2010 World Bank study on investing across borders that found the Georgian economy is "completely open" for business, to back up his argument.

Brussels, however, has been pressuring the Georgian government to come up with new legislation that would bring its free trade and competition legislation closer in line with European standards, and economist Davit Narmania says the new draft law is "important" as Tbilisi gears up for negotiations with Brussels on a free trade agreement (DCFTA).

So how does the draft law stack up?

Virginie Cossoul, a policy officer at the European Commission, tells bne that the draft law is a "major improvement" to regulate trade and competition. "We are happy because we think the law is an improvement from what we have now," she says.

TI's Kutivadze also says the draft law is a good start, though raises concerns about plans to consolidate sector regulatory bodies under an umbrella competition agency.

Lejava, however, stresses that the draft law is based on EU standards, including the provisions for the competition agency. And Cossoul says that "certain provisions" of the draft will be "subject to detailed discussions" during the negotiations, including the power of the competition agency - and guarantees that it will be an independent body.

Narmania applaudes the "political decision" to regulate the market - a step he believes is vital to ensuring greater competition. But he stresses the law will be useless if there is no political will to implement it. "The Georgian market is a very small market and the medium and big companies tend to cooperate with each other and take the biggest part of the Georgian market," he said. "I think the political decision to regulate the Georgian market [is very important]."

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