Babunashvili. Thesis. 2021. 07. 02

“Georgian Integration in EU – Contemplating the Regulatory Impact on the Economic System”
Ramazi Babunashvili
The University of Georgia
School of Law
Supervisor: Timothy Barrett

Co-Supervisor: Paramjeet Berwal
Tbilisi
2021
Georgian integration in EU – Contemplating the regulatory impact on the economic system
Abstract
Presented master thesis concerns examination of Georgian integration in EU and its legal
consequences, which are affecting economical system of Georgia. Accession to the European Union
has become the key political and economic objective of Georgia, since regaining independence. Ever
since, it became independent state, Georgia decided to become full-pledged member of EU. Path
towards EU lies on the geographical, political and economic integration in accordance with the rules
and regulations of EU. In addition to the complexities of the adaptation of the legal and regulatory
systems to the EU requirements, it is widely acknowledged that successful accession will also depend
on how successful Georgia will be in bridging the wide gaps with the current European Union
members, in terms of economic prowess. The aim of this thesis is to investigate how the integration
process and its consequent obligations contribute to development of Georgia and how are these
processes impacting different sectors of Georgian economy.
Key Words: EU integration, Economic Conditions, Legal System, Regulations, Accession,
1
მიმოხილვა
მოცემული სამაგისტრო ნაშრომი განიხილავს საქართველოს ინტეგრაციას ევროკავშირის

და მასთან დაკავსირებულ სამართლებრივ საკითხებს, რომელთაც გავლენა აქვს ქვეყნის
ეკონომიკურ მდგომარეობაზე. დამოუკიდებლობის მიღების დღიდან, ევროკავშირში
გაწევრიანება, საქართველოსთვის საკვანძო პოლიტიკურ და ეკონომიკურ საკითხად იქცა.
მას შემდეგ რაც საქართველო დამოუკიდებელ ქვეყანად ჩამოყალიბდა, მუდმივად
ცდილობს ევროკავშირის სრულფასოვანი წევრი გახდეს. ამის მისაღწევი გზა მოიცავს
გეგორაფიულ, პოლიტიკურ და ეკონომიკურ ინტეგრაციას, ევროკავშირის
კანონმდებლობის და რეგულაციების შესაბამისად. გარდა იმ სირთულეებისა, რომელიც
თან სდევს სამართლებრივი სისტემის ევროკავშირთან შესაბამისობაში მოყვანას,
ფართოდაა აღიარებული, რომ გაწევრიანების პროცესის წარმატება მეტწილად
დამოუკიდებული იმაზე, თუ რამდენად შეძლებს საქართველო ევროკავშირის ქვეყნებთან
მიახლოებას, ეკონომიკური სიძლიერის თვალსაზირისით. ამ ნაშრომის მიზანია
გამოიკვლიოს, საქართველოს ევროკავშირში ინტეგრაციის პროცესი და მასთან
დაკავშირებული ვალდებულები რამდენად ხელს უწყობს ქვეყნის სწორ დენვითარებას და
როგორ გავლენას ახდენენ ეს პროცესების საქართველოს ეკონომიკის სხვადასხვა
სექტორებიზე.
საკვანძო სიტყვები: ევროკავშირში ინტეგრაცია, ეკონომიკური მდგომარეობა,

სამართლებრივი სისტემა, რეგულაციები, გაწევრიანება
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Table of Contents
Abstract ................................................................................................................................................... 1
List of Abbreviations .............................................................................................................................. 4
1. Introduction ..................................................................................................................................... 5
1.1 Research Questions ................................................................................................................... 6
1.2 Research Methodology.............................................................................................................. 7
1.3 Literature Review ...................................................................................................................... 7
2. Historic Context of Georgia-EU relationship ................................................................................. 8
3. Georgia’s Achievements on the Path towards EU Integration...................................................... 10
3.1 EU-Georgia Association Agreement – Framework for Law Reforming ................................. 10
3.2. Approximation of Georgian Legal System to the EU Standards ............................................ 13
3.3 Achievements and Challenges in Managing EU Integration .................................................. 16
4. Economic Impact of EU integration ............................................................................................. 23
4.1 DCFTA – Examination of its benefit/challenges ..................................................................... 24
4.2 Impact of EU Integration on Georgian Economy ................................................................... 29
5. Limits of Current EU Integration Framework and Path Moving Forward .................................. 32
6. Conclusion .................................................................................................................................... 37
References ............................................................................................................................................. 38
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List of Abbreviations
AA – Association Agreement
CJEU - Court of Justice of the European Union
CU – Customs Union
CM – Common Market
DCFTA – Deep and Comprehensive Free Trade Area
EaP – Eastern Partnership
EC – European commission
ENP – European Neighborhood Policy
ENPARD - Neighborhood Programme for Agriculture and Rural Development
EU – European Union
FDI – Foreign Direct Investments
GDP – Gross Domestic Product
GSP+ - Generalized System of Preferences
NGO – Non-governmental Organization
NTM - Non-tariff measures
MFN - Most Favored Nation
PCA - Partnership and Cooperation Agreement
SEPA - Single Euro Payment Area
SPS - Sanitary and Phytosanitary Measures
TFEU - Treaty on Functioning of the European Union
TBT - Technical Barriers to Trade
TRIPS - Trade-Related Aspects of Intellectual Property Rights
VLAP - Visa Liberalization Action Plan
WTO – World Trade Organization
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1. Introduction
Since the late 1990s, the EU established a new regional foreign policy approach, which
distinguished Georgia, Moldova, Ukraine, Belarus, Armenia and Azerbaijan from other post-soviet
countries and introduced more comprehensive partnership plan, which made it possible to create new
Neighbourhood foreign policy. This became starting a point for those six countries for transition to
European states. EU’s aspiration to assist these countries in this process became even more apparent
when the Eastern Partnership format was created in 2009, which provided array of possibilities for its
members to establish new relations on regional and multilateral level and also to make existing
bilateral relations even more deep and proficient. Even if there is no EU treaty or agreement, which
would recognize Eastern Partnership as an instrument for the accession of a new member, as a matter
of fact, mutual relations involve such opportunities for functional integration, it would be logical to
assume that the ultimate goal should be EU membership. However, initiative of country to try
becoming EU member is not enough. EU should also share the interest to make such country part of
it. Such interests of EU are usually targeted towards regions, in which EU has ties.
The Georgian path towards EU integration has started since it regained independence from
the Soviet Union in 1991. Acquiring the candidacy of EU member state is still Georgia’s main goal in
foreign relations policy and it is unwavering in this pursuit. This gives rise to two questions: First, to
what extent can Georgia demonstrate sufficient progress in terms of meeting the requirements related
with the integration in the EU? Second, what kind of policies and reforms should be adopted by
Georgia to increase incentive of EU for further enlargement towards the region? Alongside with
accession process of Georgia, some of the post-soviet countries started in same conditions as Georgia
and are already showing progress in different directions, necessary for integration in EU. Success and
challenges of Ukraine and Moldova could serve as an example for Georgia to consider. Furthermore,
countries which are already members of EU and have resemble Georgia should also be taken into
consideration (e.g., the Baltic countries). Additionally, there are several countries (Turkey and the
Balkan states) which have different integration plans, but the process has been stalled for various
geographical, cultural or legal circumstances. Their challenges could be examined to avoid the same
mistakes further down the line.
New versions of association agreements has been concluded with the EU’s eastern neighbors
Ukraine, Moldova and Georgia within the frames of European Neighborhood Policy (ENP), which is
backed by Eastern Partnership (EaP). The association agreements are used instead of old Partnership
and Cooperation Agreements and are providing major improvements for bilateral relations with the
signatory members. Aside from the certain distinctive parts among the agreements between these
three countries, they all share mutual characteristics, which differs from other forms of association.
Agreements that were adopter by members of eastern neighborhood are considered as the most
ambitious and wide-ranging agreements, which EU has ever signed with non-member countries. They
are containing whole variety of issues connected with EU integration, starting from trade to foreign
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and security policy and cooperation in justice and home affairs. For the long-term goals, of the
particular importance is the idea to set up Deep and Comprehensive Free Trade Areas (DCFTAs),
which would eventually will lead toward gradual, but full-scale integration for signatory countries
into the EU single market. For this purpose, number of activities are set-out, which should be
implemented by associate countries, such as comprehensive liberalization of trade in goods and
services, abolishment of non-tariff barriers via regulatory convergence, while taking into
consideration issues such as the protection of intellectual property rights, competition law, rules of
origin, labor standards and environmental protection.
The year 2014 was marked by the signature of the EU-Georgia Association Agreement (AA)
including DCFTA on 27 June 2014, which is a milestone in EU-Georgia relations. Through this
Agreement, Georgia commits itself to gradual establishment of the European political, economic,
social and legislative standards that as expected will bring prosperity, welfare and stability to the
population. The Parliament of Georgia unanimously voted in favour of the ratification the
AA/DCFTA Agreement on 18 July 2014. the main framework of EU- AA serves as a guideline for
Georgia, on its way to becoming an EU member state; however, according to this agreement,
beforehand the Georgian government must implement all the necessary regulations that will bring
Georgian legal system closer to EU.
In the first part of this thesis, the definition and legal power of AA will be examined. It will
be evaluated as an independent document which obligates countries to enact certain policies to further
harmonize its legal system to EU legislation. Full scope of the benefits will be overviewed and
setbacks will be examined. Future prospects of AA and possibility of becoming member state of EU
will be discussed
Second part of the thesis will focus on the impact of EU integration on the economy of
Georgia, considering AA/DCFTA instruments. Different circumstances and approaches will be
outlined and observed as to how Georgian economy was affected by EU integration and whether it
had positive outcome. Current conditions of Georgia will be taken into consideration and comparative
analyses will try to make it clear whether regulatory effect of AA will have positive or negative effect
on the country’s economy, rule of law and society at large.
1.1 Research Questions

Presented thesis will address the following four research questions:
1. How does the AA affect the legal system of Georgia?

2. How beneficial could the EU integration process and the implementation of regulations be for
Georgia, considering its economical and socio-political challenges?
3. Could there be negative side-effects attached to the integration process?
4. What would be the most effective way to avoid possible risks and challenges?
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1.2 Research Methodology

At the first part of the thesis, I employ the qualitative literature review methodology, to
analyze the collected legal literature about AA and European Union. My legal analysis will be
supported by the descriptive and statistical inferences about the regulatory and cultural tendencies of
legal issues.
Research will be combination of Text Analyses method and Descriptive Research method. It
will examine existing legal documents and other related textual information, such as analyses, reports,
books and articles. At the same time, based on descriptive method, research will observe current
phenomena after adopting AA and progress in terms of EU integration. Descriptive analyses will
compare practices of foreign countries which ratified AAs. Their experience in this process and its
effects will be compared to processes in Georgia, while considering different circumstances of the
countries.
1.3 Literature Review

Existing research in this field involves examination of countries which already went through
the EU integration process in the similar way like Georgia. Most of the sources describe in details
how this process started, what were the beginning steps which eventually led to gain
acknowledgement from EU and in the end becoming part of the trade agreement. All the research,
mainly focus on economical side of the integration process. The biggest challenge for most of the
countries was to merge its existing market space with EU. Established trade agreements from
countries to meet certain requirements, especially concerning product export. Country which strives to
become part of EU, should prove that it has met qualitative measurements, sanitary and phytosanitary
measures, technical regulations,,etc. According to research in this field other difficulties are visible
with the countries that have not strong foundations for democracy, self-governance, rule of law and
sovereignty. As it was shown throughout the history of ascension of multiple countries in EU,
members of a trade deal emphasize these requirements, which serve as major hindrances for candidate
countries even now. My contribution with this research is to use currently available statistical
information, which is linked to EU integration and provide approximate assessment of current
economic conditions of Georgia and whether it can benefit from trade deal such as EU and
examination of democratic institutions of country to see the bigger picture whether this process is
adequately answering occurring challenges of the country. For this purpose, I will use data provided
by Geostat, reports of international organizations and database of various NGO organizations.
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2. Historic Context of Georgia-EU relationship

Georgia’s Euro-Atlantic integration process started in the early 1990s. after regaining its
independence from Soviet Union, Georgia has made a decision to pursue western institutions, which
has not changed ever since. EU-Georgia relations were steadily progressing over the years. First
major achievement in this direction was Partnership and Cooperation Agreement (PCA) signed in
1996, which entered into force in 1999.1 Article 43 of PCA directly stipulated the legislative
harmonization, though with nature, it was not the binding document mandatory to implement.
Correspondingly, the partnership agreement did not provide the specific terms, prescribed for
legislative approximation and was limited with general reservations and was lack of legal precision.
However, there were positive outcomes resulted on the basis of the agreement. Within the
Partnership Agreement itself, the Parliament of Georgia adopted the resolution in 1997, requiring
approximation of Georgian legislation with European and consequently it was the first attempt to
“acknowledge Georgian law in European mirror”.2
Although, the mentioned resolution was far from the desirable political and Constitutional
reality, it founded the first strong precedent of “partnership” between EU and Georgian law.3 With
this resolution, Georgia manifested the political will of approximation to European standards
The second phase of cooperation between EU and Georgia started with accession of Georgia
to European Neighborhood Policy (ENP), within the scopes of which emerged even stronger promises
for legislative harmonization.4 The ENP Action Plan, endorsed in 2006, directly requires legislative
harmonization. On the basis of the action plan, in 2009 the changes have been adopted to the Law of
Georgia “On Normative Acts”. Nowadays, the Article 17 of the law is imperative in the legislative
activity on mandatory nature of compliance with European directives.5
All the documents requiring policy changes, have played their roles in modernization,
economic reforms and formation state institutions of European Eastern Neighborhood, in relation to
Georgia. Despite of this fact, the greatest practical importance in terms of mechanisms of legislative
harmonization is granted to the AA, signed and ratified between Georgia and EU, which finds the
juridical legitimation in the Article 217 of the Treaty on Functioning of the European Union (TFEU).
Main advantage of the AA is that it includes the DCFTA. Currently, Georgia enjoys the
benefits of the EU through AA, as well as the DCFTA. Based on this framework, Georgia acquired
the right for their citizen to travel to the EU and Schengen zone visa-free. However, several critical
questions remain unanswered: How can Georgia contribute more intensively in the process of Euro-
1 Partnership and Cooperation Agreement (PCA) (1996)

2 Resolution of the Parliament of Georgia №828 “On Harmonization of Georgian Legislation with the EU Law” (1997).
3 Petrov R, Elsuvege P.V, Legislative Approximation and Application of EU Law in the Eastern Neighbourhood of the
European Union Towards a Common Regulatory Space? (2014) Routledge, London,183.

4 Communication from the Commission to the Council and the European Parliament - Wider Europe - Neighborhood: New
Framework for Relations with our Eastern and Southern Neighbours, Communication from the Commission to the Council
and European Parliament, COM (2003) 104.
5 The Law of Georgia on Normative acts, Article 17, Part 1, sub-paragraph ‘c’
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Atlantic integration and when will Georgia be eligible to the membership in the EU? Current status of
Georgia, regarding EU membership is in obscure position. According to preamble of the AA, Georgia
is acknowledged as an Eastern European country, however it does not contain any reference to Article
49 of the Treaty Establishing the European Union (TEU) stating that “Any European State which
respects the principles set out in Article 6 (1) may apply to become a member of the Union”.
Although, Eastern Partnership and the AA does not make it clear, whether Georgia has EU
membership prospects, according Foreign Policy Strategy of 2019-2022 of Georgia, becoming EU
member remains a main direction of foreign policy.
After eleven years, since starting of the Eastern Partnership (EaP), Georgia stands as its
leading member. Political and economic relations are stronger than ever and Georgian citizens now
have ability to travel Schengen zone of EU without visas. Commitments prescribed under the AA and
the Visa Liberalization Action Plan (VLAP) have become instrumental factors for Georgia to progress
reforms in terms of promotion of democracy, anti-corruption governance, border security, safety of
food, travel document safety, private data protection and anti-discrimination guarantees for minorities.
However, despite several impressive reforms, there are still major obstacles, which might halt EU
integration of Georgia, such as a lack of judicial independence, which is demonstrated by low public
trust in Georgia’s court system .6 EU has highlighted importance of this issue on multiple occasions
and even suggested that financial assistance might become conditioned on whether Georgian
government will showcase willingness to implement fundamental Court reform, which will provide
independence to Georgian judiciary.7
EU was assisting Georgia, since it regained independence, but now it has become largest
donor and supporter of Georgia. It is investing 120 million Euros to Georgia for the purposes
of assisting further implementation of AA/DCFTA and in general provide support to improve
qualities of life for Georgian population. Assistance is targeted towards specific fields, which are
covered within the frames of EU-Georgia partnership. However, compared to amounts of sums, which
EU is spending for the improvement of conditions of Georgia, tangible results are not as impressive as
it could be expected. This could be explained, by mismanagement from the part of Georgian
government and/or incorrect focus of EU to certain areas, which are selected for assistance. Also,
becoming so dependent on foreign support has been criticized and in some cases was named as
primary reason as to why Georgia is not successful to create strong and independent economy, which
would face occurring challenges without foreign assistance.
6 TI Georgia - Public Opinion Survey (2020).

7 Statement by the Spokesperson on the selection process of Supreme Court judges, Brussels, 07 April, 2021
https://eeas.europa.eu/delegations/georgia/96302/georgia-statement-spokesperson-selection-process-supreme-court-
judges_en
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3. Georgia’s Achievements on the Path towards EU Integration

European integration has become the main strategic direction in the pursuit of Georgian
development. This process has brought significant tangible results for such a small country, which has
been independent for only 30 years and is only now beginning to become part of the developed world.
EU integration has four dimensions, based on which it could be assessed, whether full accession is
achievable: 1) Geographical integration; 2) Political integration; 3) Cultural integration; and 4)
Economical integration. Full integration of Georgia in EU, will be achieved when it will fulfill all of
these requirements necessary.
On the path towards EU integration, Georgia has managed to acquire positive benefits. Main
positives which came out of EU integration is the right to free movement of people. After adopting
AA, Georgia has managed to incorporate appropriate European standards in its governance, which in
turn, resulted with elevated partnership with EU. This partnership creates space for the formation of a
trading system compatible with the EU market, which makes it possible to raise the attractiveness of
investment environment and encourage foreign investment, consequently crating new through
stimulating foreign investments; Increase of competitiveness of Georgian products; Increase of
Georgian exports; Improvement of quality of Georgian products; Stimulating economic growth and
economic development of Georgia.
In general, existence of deep and comprehensive free trade space with the EU affects the
prospects of integration into the world market, the existence of global supply chain and in turn gives
entrepreneurs new business benefits. At the same time, to meet the benchmarks necessary for
becoming EU member states, Georgia has to bear obligations, which are prescribed in AA. While in
certain areas, they can be beneficial, there are still various fields, which have to undergo drastic
changes and/or there might not be capacity to actually attain development, which AA demands. After
six years since AA’s adoption, while there have been major achievements, challenges are still
significant. In certain areas there are problems, which does not even seem to be resolvable. For that
purpose, in the process of evaluation, it is necessary to understand what does AA actually
encompasses in essence and what does it constitute, to measure actual impact of its influence.
3.1 EU-Georgia Association Agreement – Framework for Law Reforming

AA is the latest ambitious form of union between the EU and Georgia for Georgia-EU
relations. AA creates start of the brand-new phase of development of Georgian legislation, which is
conditioned with the legally mandatory nature thereof.8
The international agreements, signed with the cooperator states by EU, are to be mandatorily
implemented in the event, when the agreement turns the third country into the part of the unified
8 Guideline for “Georgia-EU Association Agreement”, (2014)
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economic zone of Europe.9 AA provides none of the pre-condition for membership of the Union.10
Instead, it envisages opportunity of Georgia to enter in internal economic zone of Europe – the single
market. Providing prospects for deep and comprehensive free trade, the Articles 26 and 29 of the
agreement annul customs tax on export and import between EU and Georgia. That is, on the basis of
implementation of the relevant obligations, Georgia is to become the part of the uniform trade system
of Europe. It means that according to the EU law, the AA is the document bearing the legal nature
mandatory to be implemented.
The preamble of AA provides four times the term “legislative approximation”, which reveals
the objective of the Agreement. The same preamble provides direct call on fundamental juridical
reforms on the basis of approximation to European standards, which is recognized as the most
important pre-condition for EU political association and economic integration. The obligation
assumed on legislative harmonization does not include solely main aspects of cooperation but covers
practically all the spheres, where partnership between EU and Georgia is at least theoretically
admissible.
AA aims at “promotion” of European law, which in itself, includes maximal approximation of
national legislation with European law.11 Unlike the preceding policy documents, is not limited with
general reservations solely but provides specifications as well. When the main body-text of the
agreement, requires loyalty to European standards, annexes to various chapters are more precise and
indicate to export of the detailed list and the terms of European legal acts in various spheres, implying
that the legislative approximation shall be implemented gradually taking the communicated terms into
account.
The mechanisms of legislative harmonization are diverse and mainly depend on the will of
the state, implementing harmonization. Generally, each country, without any legislative coercion, is
entitled to voluntarily import any of the legal standards or norms from any adjacent system, which
requires not preliminary permit by the state “issuing norm” or organization. The example is that prior
to concluding the AA, Georgian jurisdiction used to apply, in the decisions, the approaches and
principles of CJEU, though it might have voluntarily nature solely and never the coercive nature as
Georgia is not the signatory country on EU Constituent Document and nor the European law is the
main source for jurisdiction thereof.12
The mechanism of harmonization, applied by EU within AA with Georgia, is of two kinds.
On the one hand, EU obliges Georgia to inculcate the normative acts (regulations, directives) adopted
9 Petrov R., Exporting the Acquis Communautaire into the Legal Systems of Third Countries, European Foreign Affairs
Review, Vol. 13, Kluwer Law International, 41, (2008)
10 Cremona M., Accession to the European Union: Membership Conditionality and Accession Criteria, Vol. 25, Polish
Yearbook of International Law, (2001)

11 Muraviov V. The Impact of the EU Acquis and Values on the Internal Legal Order of Ukraine, Max Weber
Programme/Law Department Conference: “Integration without EU membership”, San Domenico di Fiesole, 2 (2008)
12 Dragneva R. Wolczuk K. EU Law Export to the Eastern Neighbourhood, Cardwell P. J., EU External Relations Law and
Policy in Post-Lisbon Era, TMC Asser Press, The Hague (2011)
11
thereby, and on the other hand, it requires of Georgia to respect obligations, assumed with accession
to the international agreements in various spheres. For example, the AA dictates that in trade sphere,
need to be brought in compliance with the legislation of Georgia on the basis of the legal principles of
the World Trade Organization (WTO).13 Correspondingly, the procedural norms related to
enforcement, authorities of judicial bodies and measures to provide implementation act on the basis of
the terms, prescribed under the membership of WTO.
Similar rule applies to intellectual property protection sphere. AA requires loyalty to the
international agreements, administered by the World Intellectual Property Organization (WIPO), the
obligation of adequate and effective implementation Agreement on Trade-Related Aspects of
Intellectual Property Rights (TRIPS) is particularly noteworthy.14 under the AA, has become
implementation of international obligations presumed by Georgia. It implies that EU calls on Georgia
to undertake the relevant measures (changes to the legislation, adoption of the relevant national
normative acts), providing compliance with international agreements and full implementation of
requirements thereof.15
Despite of the fact that in formal terms, Georgia-EU AA is the relation based on the priority
origin, prescribing the rights and duties of the parties, the legislative harmonization process bears the
nature of unilaterally binding treaty and its implementation is totally dictated by EU. The
harmonization process, stipulated under the agreement does not require obligation of both parties to
bring own legislation in compliance with each other’s laws. It obliges solely Georgia to have own
legislation loyal to European standards. It means that Georgia has to make concession of the positions
as it, as the non-EU member state, does not possess any leverage to affect legislative process of EU.
Despite the obligatory tone of the agreement, transformation of Georgian law to European
legislation is a voluntary process, serving for rearrangement of Georgian legislation to Western
standards. True, that some normative acts of EU completely or partially become the integral part of
the Georgian legislative system, though this process is dictated entirely by Georgian legal order.
State is the primary political body, responsible for adoption of the relevant legislation in view of
harmonization of law, though civil society as well shall necessarily be actively involved in this
process. The state, as an institutional mechanism, shall properly inform the society about the idea of
legislative harmonization. Otherwise, the process of approximation to EU standards would be
superficial and it will not provide adequate legal reform.
13 Article 1, Part 2 of the EU-Georgia Association Agreement

14 Article 153 of EU Georgia Association Agreement.
15 Muraviov V., The Impact of the EU Aquis and Values on the Internal Legal Order of Ukraine, Max Weber Programme
Law Department Conference: “Integration without EU membership”, San Domenico di Fiesole, 2. (2008)
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3.2. Approximation of Georgian Legal System to the EU Standards

Principle of approximation with European standards originates from EU and is spread beyond
its borders. Spread of European law and so-called, beyond the formal boundaries of EU is a primary
instrument for foreign policy of the Union. It involves implementation of Acquis Communautaire,
which is the collection of norms existent in the legal system of EU, in the country where EU aims to
expand its legal order. This process can be considered as the process of approximation to EU values,
which is associated to the extremely active status of the organization on international relations. If in
the past, EU was busy with stimulating internal integration of member states solely, today it realizes
that it is no longer only center behind major international challenges and it shall be actively involved
in foreign relations as well.16 Civilized nature of EU, which is conditioned with the fact that the
organization with the cooperation and approval of receiving country, without application of coercion
mechanisms, distributes the methods and instruments, to successfully applied its legal standards.17
EU possesses varied mechanisms for “export” of its law. One of the main forms of
distribution of European law is the contractual relation, which directly or indirectly, obliges the
signatory country for legal harmonization.18 It implies using international agreements, signed by EU
with non-member states. Most comprehensive form in EU integration process is so-called “accession
agreement”, signing of which allows the country for EU membership and creates space to provide
modifications within the internal regulations sphere. Based on the principle of the prevailing legal
power of the European law for signatory countries, obligatory nature of EU law is no longer put under
suspicion as to how it can be interpreted.19 Yet, agreements signed by EU with non-member states
(e.g., AA), are of less thorough by their nature.
Agreements such as this, outline the dynamics of distribution of rules to the third countries.
More frequently, then not, they become the integral parts of legislations for these countries, however,
the legal power of the agreement with EU in a particular country, depends on the Constitutional
framework of the country itself. According to, part three of the Article 7 of the Law of Georgia on
“Normative Acts”, the international agreement or contract of Georgia stands at the third place in the
hierarchy of normative acts. It is reassessed, with the paragraph two of the Article 6 of the
Constitution of Georgia, according to which the international agreement or contract is legally binding
at the extent as it does not contradict with the Constitution of Georgia, the Constitutional Law and the
Constitutional Agreement. In every other occasion, the international agreement is of the prevailing
legal force to the national normative acts, which is certainly high enough legal standard for
16 Dragneva R. Wolczuk K. EU Law Export to the Eastern Neighbourhood, Cardwell P. J., EU External Relations Law and
Policy in Post-Lisbon Era, TMC Asser Press, The Hague (2011)
17 Lavenex S., Schimmelfennig F., EU Rules Beyond EU Borders: Theorizing External
Governance in European Politics, (2009) Journal of European Public Policy 16/6.

18 Gabrichidze G., Legal Approximation to the EU Acquis – a Georgian Perspective in: EU Neighbourhood Policy – Survey
and Perspectives, (2014) Zürich, 30.

19 Flaminio Costa v ENEL [1964] ECR 585 (6/64), CJEU order
13
international legal acts. This establishes, that nature of Georgian legislation to the successive
harmonization of law with foreign standards, can be well received.
EU-Georgia AA contains different instruments to achieve approximation of legislation. They
are included in different parts of agreement. Based on the different objectives and goals of the
chapters, scope of the titles varies between chapters. Particularly, approximation provisions are
mainly placed in Title IV (DCFTA), Title V (Economic cooperation), Title VI (Other cooperation
policies) and Title VIII (Institutional, general and final provisions).20
Generally, approximation provisions included in the EU-Georgia AA can be divided in three
different groups: (1) General approximation provision, contained in Article 417, named as “gradual
approximation” and stipulates that Georgia “shall carry out gradual approximation of its legislation to
EU law as referred to in the Annexes to this Agreement, based on commitments identified in this
document. This provision should be enforced without prejudice to any specific principles and
obligations on approximation under Title IV (Trade and Trade-related Matters) of this Agreement”.
(2) Second category of approximation clauses consists of approximation provisions included in each
chapter of the AA, that are sectoral by their content. Special approximation clauses list explicit EU
legal acts, Georgian legislature should become compatible with. (3) Third category of approximation
rules is provided for in the clauses which are supportive to approximation. These clauses address the
DCFTA part of the EU-Georgia AA. They do not identify specific sectors and are defined as general
provisions on approximation under DCFTA.21
According to Article 272 of AA, Georgia is bearing the obligations to denounce provisions of
its national legislature or eliminate practices of administrative nature, which might contradict with EU
law, which is part of approximation process and aims to make compatible with. This is a reasonable
and necessary demand, since retaining prevailing administrative rules, which are in inconsistent with
approximation objectives, could serve as obstacles for the entire approximation process.
For the purpose of examination for approximation of Georgian law to EU law in different
areas, which is required by AA, the parties are regularly discussing the progress in approximation
based on the agreed timeframes, at least once a year. Timeframes for these discussions are provided in
the respective chapters, Discussions are conducted by Association Council and for this purpose,
Georgia must submit the information regarding how the approximation is developing and whether the
approximated Georgian law is implemented and enforced effectively.
Special attention is paid to the examination of policy approximation in trade-related areas.
Process of assessment for approximation results starts after Georgia reports to the EU that it has
20 Georgia-EU Association Agreement, (2014), Transport (Article 296); energy cooperation (Article 300); environment
(Article 306); climate action (Article 312); company law, accounting, auditing and corporate governance (Article 319);
financial services (Article 323); cooperation in the field of informational society (Article 327); consumer policy (Article
347); employment, social policy and equal opportunities (Article 354); public health (Article 357); cooperation in audio-
visual and media fields (Article 367).
21 Ibid. part of the (Title IV) Chapter 15 and entitled “General Provisions on Approximation under Title IV.”
14
completed the approximation provided for in the Chapters of the DCFTA part of the AA. The
objective of the assessment to understand whether the law of Georgia has been moved closer to EU
law and whether it is instilled and enforced sufficiently.22 Assessment aims to make evaluation,
whether undergoing changes meets the scope of obligation, that Georgia has taken. It is not limited to
only examine national legislature is becoming compatible with EU rules, but additionally to “ensure
the effective implementation of the domestic law approximated under Title IV (Trade and Trade-
related Matters) of this Agreement and to undertake any action necessary to reflect the developments
in Union law in its domestic law, in accordance with Article 418 of this Agreement.” 23
There is a possibility that a negative assessment may lead to serious consequences. For
example, if Georgia does not provide full effort to approximate its national law to changes prescribed
under Title IV or assessment illustrates that the law of Georgia can no longer become compatible to
the EU law, specific benefits granted by the EU might be blocked, only temporarily, until the mistakes
are corrected.24 In the worst-case scenario, EU has power to implement the suspension of benefits
only if the matter is not addressed by Georgia to the Association Committee or if it is not resolved by
Committee after three month has passed from the notice.25 Approximation provisions assisting the
DCFTA part and other parts of the AA are supported by approximation clauses which serve the
purpose to others, in case details are not specified. Article 417, imposes upon Georgia a duty to carry
out gradual approximation of its legislation to EU law according to the annexes. This provision does
not have effect on specific standards and obligations on approximation provided for in the DCFTA
section. This statement highlights on the general nature of the rule. Different instance of a general
provision, Article 418 states that “in line with the goal of gradual approximation by Georgia to EU
law, the Association Council shall periodically revise and update Annexes to this agreement,
including in order to reflect the evolution of EU law and applicable standards set out in international
instruments deemed relevant by the Parties, and following the completion of the respective internal
procedures of the Parties, as appropriate.” Here also, there is the same reflection of the general nature
of this norm in the mentioning that this clause shall not affect any specific provisions under Title IV
of the AA.26
In every case when a country takes an obligation, which encompasses an overall commitment
to general approximation, it raises concerns as to whether it is compatible with understanding legal
framework of the country. Constitution of Georgia does not prohibit such modifications, which could
be considered as an allowance for the concession of law-making to international organizations. At the
same time, there are also no clauses which could be viewed as obstacle for constitutional
amendments. Therefore, the Parliament of Georgia has mandate to interpret any type of specific
22 Ibid. Article 273 (2)

23 Georgia-EU Association Agreement, (2014), Article 274 (1)
26 Ibid. Articles 417-418
15
constitutional clauses, including a constitutional foundation for European integration. According to

the amendment, which were recently adopted to the Constitution, all the institutional bodies shall use
all measures that they possess under their competence to assist Georgia’s full integration into the
European Union and the North-Atlantic Treaty Organization. These amendments underline very
important political commitment, which is elevated to the status of a constitutional norm. It makes
distinction, that while provisions under AA could independently become part of normative base and
serve as mandatory to follow, at the same time, it cannot be used a basis for national legal acts to
subordinate the Georgian law to that of EU. However, on the bilateral level, this cannot be considered
troublesome issue considering the fact that there is no constitutional norm which would prohibit the
transfer of legislative interference, in the certain extent, to international organizations. Therefore, such
transfer may be established through international agreements concluded with an international
organization and it is only subject to formal procedural rules.27
In conclusion, it is safe to assume that Georgian constitutional order allows AA to become
mechanism for altering normative sphere of country, to the extent, which is necessary for EU
integration, while serving as a guide for all the essential changes and modifications of legislature.
However, by itself AA does not have legal authority to become part of Georgian legal order.
3.3 Achievements and Challenges in Managing EU Integration

It has more than five years, since Georgia signed the AA with the EU. This period of time
provides a sufficient timeframe to examine the short-term benefits that was expected to obtain based
on the agreement and what are the areas that still in need for improvement. AA has become the guide
force for policy changes, implementation of regulation and setting the standards in a country that
previously was unwavering in its pursuit of a policy of deregulation since 2004. AA involves an
important trade component, with the establishment of a Deep and Comprehensive Free Trade Area
(DCFTA) between Georgia and the EU. However, the AA/DCFTA, which conditionally entered into
force in 2014 and fully in 2016, still has not been as successful as it was expected, in terms of
delivering significant and tangible benefits to the Georgian population in general.
Direct link between adopting an association agreement with EU and country’s progress in
terms of becoming more compatible with EU’s standards, could be assessed by the figures of the
Eastern Partnership Index.28 For that purpose, evaluations of countries should be compared, based on
related fields. The Index was last updated in 2019, and is based on evaluation of data results from
2018, according to which it was showcased that Georgia is leading out of the six EaP countries, based
on the success of legislative modifications and institutional approximation with EU, followed by
27 Constitution of Georgia, (1995), Article 65

28 Eastern Partnership Index, www.eap-csf.eu.
16
Ukraine and Moldova, which are relatively at the same level. whereas Belarus and Armenia did not
progress significantly and Azerbaijan’s current condition is basically the same as it was prior.
Table 1. Figures of Democracy from the EaP Index 2018-19
Scores Ukraine Moldova Belarus Georgia Armenia Azerbaijan
Total (approx..) 0.66 0.67 0.43 0.70 0.47 0.37
However, these results can be accounted to the fact that some of the countries that were
negotiating an AA with the EU were already carrying out reforms before even negotiations with EU
regarding signing AA, has even started. In terms of, bold and progressive reforms of democracy and
economical standards, Georgia was already frontrunner, since 2004, which means it has decade to
prepare general landscape, which would make EU integration process much more compatible and
successful. EaP countries can be divides in two groups based on how much progress they had in terms
of democratization prior to AA negotiations: First groups includes more successful post-soviet
countries, that managed to implement necessary reforms for the purpose of creation functioning
democracy (Georgia, Ukraine and Moldova) and second group involves countries, that even though
managed to develop as independent states, their inner government models are far from the standard,
which can be considered as democratic states (Belarus, Azerbaijan and Armenia). In terms of
democratization progress, gap between these two groups was significant enough for EU to prepare
completely distinctive approach between them. This gap has remained, even after the AA was adopted
and according to various important parameters of Freedom House’s figures for 2019, the distinction
between the countries from these two groups still remains quite significant. 29 Currently, Georgia is
regarded as a ‘partial democracy’ according to country profile on Freedom House.30 In the process of
making estimations, the index pays attention to two important factors: political and civic rights.
Georgia has scored in both criteria as an average. Levels of democratic development plays the major
role, when the prospect of EU membership is discussed. However, it is noteworthy, that over the
recent years Georgia has surpassed both Moldova and Ukraine and based on estimations of
institutional reforms, it is the leader amongst the EaP countries. Despite this strive and a growing
aspiration to become EU member state, there is a minimal chance for a sole country to receive EU
membership, unless it is part of a region which belongs to the EU’s enlargement area. In such cases,
when the geographical standing does not contribute to the integrational process, it is essential for a
country like Georgia to become as highly democratic as possible, because scoring an average in
political rights and civic freedom will not be enough to overcompensate geographical and economical
disadvantages which are currently presented.
29 Nations in Transit (2017), Freedom House.

30 Georgia’s Freedom House profile https://freedomhouse.org/report/freedom- world/2017/georgia.
17
EaP itself had included various prospects for these six countries of Eastern Europe, and initial
plan was to connect them to the EU with intensive mechanisms, but soon EU realized that this plan
was not appropriately adapted to the needs of region, therefore process was halted. By 2014, the
Eastern Partnership policy, has reached the dead end, because it did not envision its path forward, thus
European Commission started to reform it. In general, the reforms which the EaP proposed in reality
were only cosmetic changes. In Georgia, it was anticipated, that reforms would assist progress of the
country to greater extent and provide fresh opportunities. Unfortunately, the only addition to the EU’s
policy, which a document on the need to reform the EU’s neighborhood policy contained, was to
arrange more meetings on the ministerial level and continuation of bilateral relations, purpose of
which was obscure at that time. Also, from the perspective of Georgia, expectation was that occurring
changes would create clear pathway for EU membership and what has to be done to achieve it.
Therefore, since this issue was not reflected in the document, it is still vague, at what point can
Georgia be granted permitted to become member or even candidate.
Despite the lack of a clear blueprint for the EaP countries EU integration, level of political co-
operation between Georgia and EU is at a very high standard. Main focus is on the regulations
affecting partnership between the two in the areas of foreign policy, internal security and defense. Co-
operation in these fields was prescribed in particular details and many aspects are as strong as any
country which has signed AA with EU.
As a result of this co-operations, Georgia has become the member of energy union Europe,
membership of which in future can serve as additional precondition to become candidate countries.
Signing AA and protocol with EU allowed Georgia to enjoy benefits of EU programmes and obtain
access to its agencies. While, other countries from EaP also exercise this right in limited form, full-
scale allowance can only be granted for the countries that adopted AA. Georgia’s AA involves co-
operation in 22 spheres and creates effective instruments, in order to assist country’s functional
integration into EU institutions and to support process of its economic integration via EU market
access by providing high levels of co-operation in different sectors. Main benefit from this is the fact
that it is up to Georgia’s discretion as to in what manner it will use these instruments.
One of the most significant positives that came out of AA is the right of free movement in the
Schengen area. Paragraph 16.2 of the AA stipulates that country that has signed AA should have to
work intensively to make all the preparations, which are essential to obtain free movement of its
citizens in EU and to gradually move towards the introduction of a visa-free regime. This was
requiring institutional foundation. After Georgia laid the groundwork and met the necessary
requirements, based on the aims of the EaP, the EU granted Georgia an action plan for visa
liberalization in 2013. The action covered four elements: 1) Document security, introduction of
biometrics; 2) Migration management, Integrated border security, asylum; 3) Public order and
security; 4) Foreign relations and fundamental rights.
18
To implement plan in full and effective capacity, it involved implementation of legislative

and administrative policies in various areas and was closely observed and evaluated by EU. Georgian
government managed to fulfill all the requirements over a period of three years. Based on the positive
feedback from EU, in 2016, Georgian citizens were given the right to short-term visits visa-free to the
countries of the Schengen area (including EFTA and Switzerland). To this day, this is regarded as one
of the most significant achievements, which Georgia has managed towards its acceptance and future
integration with the EU. There were other consequent positive side-effects coming from that process.
Legal foundation for migration become more detailed and Georgian biometric documents became
more secure. Also, it has raised support of population in Georgia for the country’s integration process,
which based on survey data of the 2016, at that time has increased by 8 percent.31 In two years after
visa-free regime was arranged for Georgia, 311,453 Georgian nationals traveled to the EU without a
visa.32 However, according to research, that was published in 2019, which relied on the survey
performed over the years starting from 2017, revealed that 90% of respondents answered that they
have never traveled to in any country EU. Out of all the respondents, only 5% admitted that have
visited any EU country once and only 3% had multiple visits.33
Since signing the AA, which included DCFTA, there has been a substantial increase in trade
with the EU.34 However, the increased trade has not affected positively on the export of Georgian
agriculture food products to EU. In reality, the results were the opposite, the export of agriculture food
products went down from 2015 to 2018.35 It occurred mostly because of the fact that Georgian
agricultural products frequently do not satisfy EU standards. In essence, product of export from
Georgia to EU is restricted with only four types of animal products: wool, leather, fish and honey.
Export volume of these products has remained insignificant. In order, to provide increase in export of
Georgian agricultural products to the EU and ensure that it will bring significant benefits to the
producers, Georgian businesses have to meet EU standards. For this purpose, it is essential for
Georgian producers to acquire specific knowledge in their respective field increase investment in their
sector, whether it will be from state subsidies or attracting successful international businesses as
investors.
In the area of institutional rapprochement, Georgia still has some of the significant challenges,
which might serve as setbacks in terms of democratization process. Even if Georgia is gradually
following AA obligations by adopting relevant policies, longstanding barriers within governmental
bodies might halt progress for further integration. Issues concerning to lack of an independent
31 EP foundation, Knowledge of and Attitudes towards the EU in Georgia (2017) Survey Report
32 European Commission, “Commission Staff Working Document”, (2018) SWD 496, Brussels
33 Caucasus Research Resource Centre (CRRC) commissioned by NDI; Public attitudes in Georgia, (result of April 2019)
survey” https://www.ndi.org/sites/default/files/NDI%20Georgia_April_2019_Public_Issues%20Poll_ENG_Final.pdf
34 Official statistical data of Geostat, External Trade https://www.geostat.ge/en/modules/categories/35/external-trade
35 Agro-food trade statistical factsheet; European Union – Georgia; European Commission DG Agriculture and Rural
Development https://ec.europa.eu/agriculture/sites/agriculture/files/trade-analysis/statistics/outside-eu/countries/agrifood-
georgia_en.pdf
19
judiciary, high-level corruption, institutional deficiencies and rule of law, all continue to hamper
further integration and some of these areas are seriously challenging integrity and transparency of
institutional governance of the country
While, government of Georgia had major successes in terms of combating low-level
corruption, high-level corruption remains a troubling issue and must be resolved. Non-governmental
organizations have highlighted this issue and called out government for not pursuing investigations
and in some cases hesitating to fully investigate cases, some of which are paused for indefinite period
of time. This issue was emphasized in the European Parliament’s report on the implementation of the
EU AA with Georgia adopted in October of 2018.36 This document has acknowledged
accomplishments of Georgia, when it comes to fighting corruption on the low and mid-level of state
departments, but at the same time, highlighted, that elite corruption in the high-level of government,
still remains a major concern. Therefore, at first Georgian government should identify, if this kind of
corruption actually takes place and to what capacity has it increased. After that must showcase
willingness to find a solution to it. One of the possible solutions could be setting up an independent
investigative body concerning high-level corruption cases
Another major challenge that Georgia faces is alarming suspicions concerning political
influence from ruling party over its judicial system and its lack of independence and transparency
Georgian government has carried out four waves of judiciary reform, but severe problems still remain
within system. Georgian civil society and Georgia’s close international partners have been vocal
about political influence on judiciary. In AA implementation report of 2019, the EU has highlighted
that systemic problems are still prevalent and on there is a necessity to improve transparency and
accountability in the judge appointment process and rules.37 In its 2019 Human Rights Report, the US
State Department was critical about the issue, that judges, in specific cases, were not showing the
signs of independence, which is required and manner in which they are elected cannot produce
trustworthy and independent court system. Political influence comes from both, within and outside of
high council of judiciary of Georgia. The report also highlighted on the “strengthening of an
influential group of judges primarily consisting of High Council of Justice members and court chairs
that allegedly stifled critical opinions within the judiciary and obstructed proposals to strengthen
judicial independence.”38
In addition to the concerns related to democratization, Georgia also faces critical social
vulnerability. To this day, Georgia remains a developing country, much poorer than most EU
36 European Parliament, Report on the implementation of the EU Association Agreement with Georgia (2019)
http://www.europarl.europa.eu/doceo/document/A-8-2018-0320_EN.pdf?redirect
37 Joint Staff Working Document Association Agreement Implementation Report on Georgia; (2019); document
https://eeas.europa.eu/sites/eeas/files/2019_association_implementation_report_georgia_en.pdf
38 Georgia 2019 Human Rights Report; US State Department https://www.state.gov/wp-
content/uploads/2019/03/GEORGIA-2018-HUMAN-RIGHTS-REPORT.pdf
20
members and with a high level of unemployment.39 According to World Bank statistics, GDP per in
Georgia (per capita $4698) is closest to the poorest country such as Bulgaria; and even in case of
Bulgaria, it the number is twice as much (per capita $9.828).40 Rates of unemployment in Georgia are
steadily remaining in high numbers and this issue is showcased the most alarming among Georgian
youth..41 This became prime reason for the labor force intensively leaving Georgia in search for jobs
mainly in neighboring countries or EU. Amount of people seeking asylum because of economic
difficulties, especially in EU countries, has also become concerning issue in recent years. Amount of
Georgia asylum seekers in EU was constantly rising pre-pandemic period, before borders of most
countries closed, reaching its peak in 2018, amounting to 17,980.42 Also, large number of families in
countryside regions of Georgia are relying almost entirely on transfers from abroad, which are send
by relatives, that are employed as labor migrants in foreign countries. Remittances are reaching high
numbers compared to overall GDP of Georgia. It was record high in 2019 which comprised 13% of
the country’s total GDP. Number of persons, that are living under the extreme poverty level, has been
increasing on average 3-5% since 2015 to presently.43 These could serve as hindrances for EU
integration. Georgian government must use different policies to increase economic conditions. Main
focus should be on promotion of local small/medium business and assisting to make financial
products more accessible for them.
Despite the fact that, EU grants more than 120 million Euros to Georgia every year, for
reforms in the sectors of public administration, agriculture and justice reform, yet based on surveys,
Georgian population still wants to see the EU play bigger role in the areas of education, healthcare
and unemployment.44 It could have been caused by fact that ordinary citizens are not aware about the
support that the EU provides and/or did not receive benefits from it. Also, it could be explained by
Georgian government’s inefficient implementation of policy. For instance, according to the Food and
Agriculture Organization of the United Nations, agriculture still amounts for about 47% of the
country’s labor force, while 96% of farmworkers are recognized as self-employed.45 The sector is
main focus of the government agenda and the EU has assisted with significant amounts of sums
through the European Neighborhood Programme for Agriculture and Rural Development (ENPARD).
Nevertheless, the share of agriculture of the country’s GDP has been lowering annually from 2013 to
39 NDI commissioned survey (2019)

https://www.ndi.org/sites/default/files/NDI%20Georgia_April_2019_Public_Political%20Poll_Eng_Final.pdf
40 World Bank, GDP per capita data index
https://databank.worldbank.org/reports.aspx?source=2&type=metadata&series=NY.GNP.PCAP.CD
41 World Bank, Youth unemployment data in
Georgia; https://data.worldbank.org/indicator/SL.UEM.1524.ZS?locations=GE.
42 Eurostat data https://ec.europa.eu/eurostat/documents/2995521/9665546/3-14032019-AP-EN.pdf/eca81dc5-89c7-4a9d-
97ad-444b6bd32790
43 World Bank Poverty headcount ratio https://data.worldbank.org/topic/poverty?locations=GE
44 EU Neigbourhood East; Annual survey (2019); Awareness and Efficiency of EU support Public Opinion in Georgia
https://www.euneighbours.eu/sites/default/files/publications/2019-
07/EUNEIGHBOURS%20east_AS2019_Factsheet_GEORGIA_ENG.pdf
45 FAO. 2020. Smallholders and family farms in Georgia. Country study report (2019). Budapest.
https://doi.org/10.4060/ca9822en
21
2020. In addition, the portion of agribusiness in the production of the total economy has also went
down.46. Therefore, Georgia and the EU need to reevaluate the effectiveness of EU support and revise
some of the setbacks, which also involve establishment of more specific standards and using more
assessable indicators
Even if it had major positive benefits, as it stands now, the Eastern Partnership program has
reached the stage at where it is not as effective as Georgia (and other partner countries) wish. There is
a requirement for substantial and comprehensive modification of reform, internal diversification and a
suitable approach to respond to aspirations of EU integration for EaP front runner country, such is
Georgia. From the perspective of EU, if it is not done in near future, there is a risk that the EaP
countries will give up the interest in pursuing foreign policy directed towards integration in EU and
from the perspective of EU, it might lose the ability to promote the democratization process in the
Eastern Neighborhood or it might not be as impactful as it was expected. Even if EU will decide to
maintain the EaP format, there is a need to differentiate between member countries and propose
tangible incentives, for the countries that are dully performing their obligations and showing genuine
progress, compared to other members, that are de facto neglecting to follow EU standards. It is
necessary to make internal adjustments in the approach, which would provide more assistance to the
EaP states that are dully performing their obligations and following AA, by setting up an institutional
mechanism and reforms. For example, in order to guarantee Georgian farmers will receive actual
profit from the single market coming from DCFTA, EU and Georgia must co-operate to accelerate
land reform, which would guarantee that plots of land are not divided and unregistered and that small
and medium businesses can rely on the better access to presented financial products. Additionally, EU
should use conditionality as a tool for incentive and establish the ‘less for less’ principle, in case a
partner country does not perform commitments, which are essential to move forward with EU
integration.
46Official data of the National Statistics Office of Georgia https://www.geostat.ge/en/modules/categories/23/gross-domestic-

product-gdp
22
4. Economic Impact of EU integration

Since 2004, Georgia’s economic course was relying on implementing reforms, which would
make it one of the most trade-liberal and open economies in the world. It has been using most
liberalized approach regarding exports and imports, by removing almost all tariffs and other
regulative rules, which could have become burden to commercial activities. One of the major
objectives in this process was to become part of the global trade policy. This was achieved, when
Georgia WTO member in June 2000 – in relatively short period of time since it regained
independence and began building of its economy. Georgia granted Most Favored Nation (MFN)
treatment to evert WTO member and because of Generalised System of Preferences (GSP+), Georgia
has been exercising low or zero tariffs for two thirds of its exports to the EU, which covers almost
7,000 of its export products.47. After the 2008 war with Russia, Georgia ended its membership in the
CIS organization in 2009, but has retained mutual free trade agreements (FTAs) with eight post-soviet
countries, which also included Russia. It has also managed to establish a Free Trade Areas (FTA) with
Turkey and European Free Trade Association (EFTA). Georgia-China FTA has entered in force in
2017.48 According to WTO, Georgia has bound its tariffs on all products, the simple average applied
MFN tariff is as low as 2% starting from 2010 to the present day. The simple average MFN tariff for
agricultural products fell from 7.2% in 2009 to 6.7% in 2015, and that for non-agricultural products
increased from 0.2% to 0.8% in the same period.49 Georgia does not use contingency measures and
has not drafted relevant legislation for such mechanisms. There are only minimal export restrictions,
when it comes to export taxes or licenses. Export subsidies are not provided in Georgia and it is not
using any export financing instruments. Based on EU recommendations, in the framework of
preparations for the DCFTA, Comprehensive Strategy of Competition Policy was adopted by the
Georgian government and based on which, Georgia adopted the Law on Free Trade and
Competition.50 The Law on Competition was developed as part of the antimonopoly reform with the
aim to strengthen the institutional framework for promoting free trade and competition. Georgia has
been one of the most business-friendly transition economies. According to Doing Business Survey,
conducted regularly by the World Bank, the country ranked 7th out of 192 surveyed countries on the
Ease of Doing Business.51 In this and other rankings, Georgia performs much better than other
regional peers and DCFTA countries (Azerbaijan: 26, Russia: 32, Armenia: 43, Belarus: 39, Turkey:
44, Moldova: 48, Ukraine: 73).52 However, the outstanding doing business ranking does not provide a
full picture of the country’s competitiveness. In fact, Georgia has just a few competitive export
47 Generalized Scheme of Preferences (GSP+) https://ec.europa.eu/trade/policy/countries-and-

regions/development/generalised-scheme-of-preferences/
48 Georgia-China Free Trade Area signed in 217 https://www.internationaltaxreview.com/article/b1f7n3d4sy1h2f/georgia-
georgia-signs-free-trade-agreement-with-china
49 WTO, Georgia - Resolution WT/TPR/S/328 (2015) https://www.wto.org/english/tratop_e/tpr_e/s328_sum_e.pdf
50 WTO, Georgia – Trade Policy Review WT/TPR/G/328 (2015). https://www.wto.org/english/tratop_e/tpr_e/g328_e.pdf.
51 Georgian Profile on Doing Business. https://www.doingbusiness.org/en/data/exploreeconomies/georgia
52 Region Profile of Europe & Central Asia, Doing Business Indicators Report (2020)
https://www.doingbusiness.org/content/dam/doingBusiness/media/Profiles/Regional/DB2020/EAP.pdf
23
products, and even those face considerable hurdles on the EU market owing to quality and other
problems, such as Non-Tariff measures (NTM), or Technical Barriers to Trade (TBT) and Sanitary
and Phytosanitary Measures (SPS).53
4.1 DCFTA – Examination of its benefit/challenges

DCFTA establishes a preferential trade-regime between Georgia and the EU and creates
possibility to increase access between the markets, on the basis of regulatory harmonization. To be
more specific, DCFTA allows Georgian entrepreneurs to trade their products in the biggest market of
the world, such as EU single market, without additional tax burdens and quotas restrictions. DCFTA
promised to enhance prospects of trade for Georgia and generate substantial economic growth by
bringing its legislation closer to that of the EU. It will also gradually eliminate trade barriers, which
exists between parties, concerning goods and services. DCFTA covers trade in goods, provides for
increased access of the services market and develops easier conditions of establishment for foreign
investors. DCFTA sets the path to advance, with more progressive reforms in trade-related policies,
such as standards of hygiene for agricultural products, regulations for industrial products, provisions
about public procurement, enforcement of intellectual property rights at the border, and service sector
approximation to EU rules. Moreover, agriculture product from Georgia will have to fulfill
requirements not only in case it is exported to EU, but also when it is consumed within the country (as
elsewhere in the EU, SPS hygiene rules do not apply to production for private consumption or to
small quantities supplied to local markets).54 This has set the beginning for a long process to improve
sanitary and phytosanitary standards, intellectual property rights protection, competition, technical
regulations on industrial products, and customs and trade facilitation. It is obvious, that this process
will bring not only benefits, but also short to medium-term costs. Over the years of transition period,
state bodies are required to adjust country’s legislation EU’s, which in nature is heavily relying on
strict regulatory input, which creates difficulties for Georgia given that it had to go through wide-
ranging reform process, right after the era of deregulation and more of a libertarian economic policy.
Moreover, since it is constrained by limited financial and human resources, the perception in Georgia
is that the benefits of the EaP have not trickled down to ordinary citizens quickly enough.
DCFTA includes many provisions, which are directly or indirectly influencing on EU-
Georgia economic relations and development of Georgian economy in general. DCFTA aims to
gradual economic integration of Georgia into the EU via liberalization of trade rules, progressive legal
approximation and convergence of regulatory sphere. Even so, at this point, which stage of economic
53 World Economic Forum Global Competitiveness Index (2018) - no. 66; or the Bertelsmann Transformation Index (2019)
no. 42. http://reports.weforum.org/global-competitiveness-report-2018/competitiveness-rankings/;
https://www.btiproject.org/de/daten/
54 A. Adarov and P. Havlik, “Challenges of DCFTA: How Can Georgia, Moldova and Ukraine Succeed?” (2017) wiiw
Policy Note/Policy Report No. 18
24
integration could be attained between the EU and Georgia, one the implementation process of DCFTA
is properly concluded, still remains ambiguous. DCFTA moves beyond “ordinary” FTA, which is
viewed as initial step for economic integration, however, DCFTA is not creating such strong
economic union as the Customs Union (CU) or Common Market (CM), which are next logical stage
and therefore, more advanced forms of economic integration. Moreover, economic integration
concepts vary integration processes, based on depth, speed, scope and institutional features of
approach. DCFTA granted Georgia the right to export certain products duty-free to the EU, however,
there are still some restrictions on Georgian export products put in place, which stand as obstacles for
Georgia to fully utilize single market. For example, one agricultural product, garlic, will be duty-free
but still subject to a tariff rate quota.
AA, with its integral part on DCFTA, has been widely acknowledged as the best possibility
for Georgia to increase exports to the EU and enhance investment attractiveness of the country.
Benefits from AA/DCFTA mostly depend on the manner in which reforms will be carried out. Speedy
transition in terms of regulatory convergence with the EU, should not only support growth of
Georgia’s exports to EU single market, as well as attractiveness of Georgia for FDI from the EU
member states. However, after the document was provisionally applied, positive impact of DCFTA on
trade and investment performance were not overly significant. Despite some promising developments
in the EU-Georgia trade relations after enactment of the AA, in 2015-2019, which is post-AA/DCFTA
period rates of annual average growth of Georgia’s exports to the EU and investments from the EU
countries to Georgia in contrast to 2011-2014 has declined.55 Despite existing obstacles, slowly but
steadily, Georgian export in EU is increasing and market destinations for Georgian product became
more diverse. Since the time DCFTA has been introduced, shares of markets for Georgian products
was becoming more diverse, in relatively short period of time. For example, from 2014 to 2018,
the share of Georgia’s entire export volume to the EU was raised from 20% to 24%, while the portion
of exports to the Commonwealth of Independent States (CIS), which was previously biggest export
market for Georgia, has decreased from 55.5% to 43%.56. It is obvious, pace of progress for
implementation of the AA and DCFTA is not efficient enough for substantial increase of export and
investment promotion. Georgia should continue reforms in respected areas, prescribed under AA.
After five years since the agreement has been enacted, Georgia still is not capable to enforce
DCFTA in full-scale. Even in spite of the fact, that DCFTA implementation is regularly assessed as
completely positive in the Georgian Ministry of Economy and Sustainable Development’s reports on
AA. This could be explained by the excessively high initial expectations, when it comes to immediate
55Official Statistics of Geostat - External Trade of Georgia (2019)https://www.geostat.ge/media/32463/External-

Merchandise-Trade-2019_publication-2020.pdf; External Trade of Georgia (2015)
https://www.geostat.ge/media/20916/External-Merchandise-Trade-2015_publication-2016.pdf;
Official Statistics of Geostat – External Trade of Georgia (2018) https://www.geostat.ge/media/24973/External-

56
Merchandise-Trade-2018_publication.pdf
25
economic impact of the agreement, which was projected by various studies. Even if it is not feasible
to conduct a comprehensive analysis according to results from five years, it is still possible to market
some conclusions, if we take into consideration existing evaluation studies and reports. According to a
study by the EPRC economic benefits from the DCFTA were projected to amount around 6.4% of
GDP, while over the next five years, volume of export products from Georgia should have increased
by 13.6%.57 Moreover, based on another study by ECORE, Georgian exports were estimated to
growth by 13% in the long term, while increase of GDP will be 4.2%.58 In this regard, expectations
were places much higher than what the actual statistics were (the average annual GDP growth from
2014-2019 was 3.7 %).59 What is more concerning is the fact that, while DCFTA is already in force,
and budget spending in agriculture has increased since 2015, from 1% to 4% to provide financial
support for different state programs and directly subsidize some products,60 while the real share of
agriculture in GDP decreased by 2.7% in 2018 compared to 2017.61 This could be due to the fact that
policies, which were implemented in this sector, were not properly enforced. It is also noteworthy,
that the agriculture sector is considered as major strategic sector of the Georgian economy, because
more than half of the population is employed in in this field.
There have been no significant changes to the export structure, when it comes to commodity
positioning, after DCFTA has been enacted. Raw materials are still the main component of all the
commodities, which are exported to EU single market, more specifically products such as copper ore
and distillates, nourishments, petroleum products and ethyl alcohol.62 Nuts and wine from the
agriculture sector are most popular among the products which are exported in EU single market,
placed in top ten of Georgian export products, but even that amounts to a relatively insignificant
portion in the total export. More specifically, in 2019, export with EU states amounted to 645.4
million USD. Wine exports, worth 160 million USD, represented only 5% of entire export volume. At
the same time, nut exports, worth of 84 million USD amounts to only 2% of all export product. As it
stands now, wine and nut exports combined account to less than half the value of the export
commodities, which are in high demand, such as copper ores and concentrates, that amount to 16% of
total exports, or 418 million USD.63
57 EPRC, European Union’s Agreement on Deep and Comprehensive Free Trade Area and Georgia, (2014)
58 European Commission, Trade Sustainability Impact Assessment in support of negotiations of a DCFTA between the EU
and Georgia and the Republic of Moldova Final Report, (2012)
59 Official Statistics of Geostat, Real Growth Rates of GDP Over the Years,
https://www.geostat.ge/en/modules/categories/23/gross-domestic-product-gdp
60 Official Statistics of Geostat, Agriculture in Georgia (2018)
https://www.geostat.ge/media/31932/soflis_meurneoba_2019.pdf
61 Official Statistics of Geostat, National Accounts of Georgia (2018)
https://www.geostat.ge/media/29203/erovnuli_krebuli_2018.pdf
62 Georgia’s DCFTA Communication Toolkit, http://gip.ge/wp-content/uploads/2018/09/DCFTA%20toolkit_final_June26-
edited2.pdf
63 Official Statistics of Geostat – External Trade of Georgia (2019) https://www.geostat.ge/media/32463/External-
Merchandise-Trade-2019_publication-2020.pdf
26
There are several significant obstacles for Georgian export products to EU single market,
however in most instances it is due to the incapability of Georgian producers to follow standards of
requirements, which is necessary for the product to be placed in EU single market and production
chains, that are inefficient. These problems raise the cost of products originating from Georgia and
stand as barriers for significant growth of export product. EU single market should be attractive for all
of the Georgian producers: it is a large market (more than 500 million potential customers, with high
purchasing power). However, for the product to be placed in single market, even under the DCFTA,
EU requirements, such as non-tariff regulations should be followed. It is exceptionally problematic for
small and medium enterprises to overcome such barriers.
Main issue still comes from the quality of product, which is allowed to be exported. Many
produces could not harvest product in the manner which would be acceptable by EU quality
standards. Georgian government still has not implemented international quality certification system as
mandatory for Georgian producers. This is due to the fact that enactment of such procedures is
connected with high cots and it would result with increased prices in domestic market for Georgian
producers, therefore country could not have afforded such increase. Additionally, there is a problem
with the shortage of availability of laboratories. Particularly in regions, for small and middle
producers of agriculture product, these type of examination procedures are completely non-existent
and based on the scope of which it should be introduced, it is less likely to become regular practice in
foreseeable future.64
Other challenge, which is still unresolved is land fragmentation. Since producers in most
cases ow small land plots and the unregistered lands are still major problem, which leads to small
scale production. These factors prevent economies to move on bigger scale. Therefore, it is more
difficult to compete, with producers of other countries in terms of production cost.65 Government
should use state programs to support producers in the process of land unification, which could be
focused towards targeted to reduce production costs and increase the output.
Infrastructural problems are also serving as major obstacles for effective usage of DCFTA.
For example, the lack of central irrigation systems is a frequent concern in regions.66 Cold storage
units and storage facilities, which are not suited for respective products contribute in the damage,
which is done to the potentially exported products and does prevent production growth. Poor
condition of connecting roads is another challenge, which small and medium producers are
encountering. Lack of internet access in regions and more intensively in high mounting places are
cited as cited as obstacle for creation of production chains and increase of production volume in
general.
64 Ministry of Economy and Sustainable Development of Georgia, SME Development Strategy of Georgia 2016-2020
65 EESC, Awareness and Involvement of Georgian Small and Medium Enterprises and Civil Society in Implementation of
the Deep and Comprehensive Free Trade Area with the EU, Survey (2019)
66 EESC, Increased Capacities of Georgian Civil Society and Identified Challenges for Georgian Small and Medium
Enterprises to Access the EU Single Market, (2019)
27
Another setback which is noteworthy is the lack of access to finances for producers. Georgian
banks are known to include higher interest rates in the contracts of loans targeted towards small and
medium entrepreneurs, especially in case it is newly established businesses. Additionally, the
Georgian banks are demand guarantees for small loans are generally, that are relatively high. There
are no loans, which would be specifically targeted to subsectors and entrepreneurs have limited access
to loans to fund business ventures. Additionally, credit products available for mid-term or long-term
investments are in limited capacity.
There is issue in terms of informational campaigns and lack of information about DCFTA.
Level of awareness concerning the benefits of DCFTA is low, which is more concerning in regions.
Local government is not involved in the process of promotion of benefits to export in EU market and
DCFTA. Informational campaigns, that were conducted were done by state agencies and they are not
regular, rather limited to occasional visits and theoretical presentations. Small and medium producers
are not inclined to target their export product towards EU single market, since they are not privy to the
benefits which might come with it.67
Taking all of these factors into consideration, it can be concluded that at this stage, small and
medium enterprises are not able fully exercise advantages of the benefits, which are provided by
DCFTA and cannot produce product that would be competitive in the EU single market. These
problems could be resolved by combined effort of Georgian government, EU assistance and civic
society involvement, by conducting following actions: raising awareness (different formats of
informational campaigns, especially in the regions); focusing government programs based on the
necessities of the regions and use targeted approach in the planning of state programs, support and co-
participation in financial instruments, assistance for small and medium enterprise in the process of
adapting to international standards, improving infrastructure, which is preventing production increase
and increase of information-consultation services, that is outlined in different strategies and actions
plans to advance agriculture.
In conclusion, it could be assumed, that enactment of the DCFTA did not bring in significant
changes in the structure of GDP and/or substantial increase in exports. Remaining challenges
emphasize the need to develop agriculture sphere and adapt it to modern technologies, which is hard
task in the short term. It will need substantial financial resources and competency. Before those
problems are not solves, the DCFTA cannot become the framework for small and medium enterprises
to overcome non-tariff barriers and meet quality requirements of European standards. After it is
achieved, Georgia should experience increased capacity for the volume of production and there will
be a much larger number of entrepreneurs, with the ability to fully guarantee regular supply of export
products to the EU market.
67EESC, Georgia on European Way: Creation of Effective Model for DCFTA and SME Strategy Implementation Project
Findings & Recommendations for Further Action, (2019)
28
4.2 Impact of EU Integration on Georgian Economy

Moving towards becoming EU member state is a task, which involves adjusting to the legal
order of the EU, but at the same time it will inevitably change economic system of Georgia and the
way it is structured. Even if the European integration does not involve transformation of Georgian
economy to its core, it still offers a number of advantages for Georgia, but many of them are of an
intangible in nature and some can only be demonstrated in long-term future. Starting point, for
becoming part of EU is to stabilize the domestic economic sphere and legal system, to follow the
order which is introduced by international society, which will make Georgian legislature more
foreseeable for foreign investors and more resistant to constant modifications, which should impact
positively on the stable economic development of the country. Most of the changes attached to EU
integrations, which are included in Georgia’s legislation, are based on international contractual
commitments and therefore introducing international laws in Georgian legislature will make it
difficult to modify or denounce them in the case of the change of government or because of any type
of societal turmoil (international obligations are placed on higher stage of hierarchy of normative acts,
than ordinary local laws).
Allying with EU as a major partner is a signal to investors, that economic system is structured
in accordance with international standards provided by EU and they will be enforced consequently, as
they are guaranteed by a legally binding international agreement. This should contribute to the
increase of desirability of Georgia as an economic partner for foreign investors. Moreover, intensive
monitoring of the EU-adjusted laws (by Association Council, which is formed based on the AA) is
ensuring efficient implementation of business regulations, that recently was considered chaotic and
unstable in the eyes of international investors (e.g., modification of competition policy was conducted
almost every year). Currently, economic operators have a capacity to prepare their strategies, based on
the already agreed calendar of regulatory approximation of Georgian laws with EU laws. Thus, the
comprehensive implementation of AA has become a solid anchor in the reform process of Georgia’s
economy. Such benefits, even that of a general character, are very important, especially for the
country which is highly depending on FDI.
In the long-term, when all of the regulatory requirements are fulfilled and policies are aligned
with EU technical and sanitary standards, enhanced competitiveness of Georgian products will result
in broader use of duty-free access to the EU single market, which should inevitably lead to substantial
increase of Georgia’s exports. The radical shift from deregulation to building up state agencies and
introducing regulations was difficult and took time. For example, after the Rose Revolution, the
country’s food safety system was abandoned altogether.68 The current lack of compatibility of
Georgian agricultural products, with EU SPS system, severely restricts the capabilities of the majority
of Georgian food to be exported to the EU market. Only types that are presently exported to the EU
68 Peel Q, “FT Report: Georgia 2007 - Preaching Creative Destruction”, Financial Times, (2007)
29
are products, which do not necessitate official health certification or for that the exporting industries
in Georgia have capability guarantee that they are in line with EU food safety criteria. For example,
products of an animal origin need health certificate, which significantly increases its prices and makes
it harder to export. The engagement of international companies, with Georgian producers should be of
critical significance. In the absence of investments and lack of educated producers, the Georgian
economy will not be able to progress and/or generate many exported products, which are competitive
in EU marker and services, to raise money for supporting new ideas, etc. FDI is also necessary to
form new specializations, which could have considerable potential. It could not be achieved
exclusively by domestic businesses, because the necessities and challenges could be ambiguous and
lack of experience will be an obstacle. Promotion of and incentives for FDI inflow could be achieved
in coordination with Georgian government and EU. International investors may not “realize” that
Georgia could be attractive for their venture, based on different reasons: due to small size of the
market; quite long distance from the EU for the most active companies investing abroad; geopolitical
position which involves unresolved conflict with Russia; small number of skilled labors; unbalanced
(so far) legal environment; an obscure legal situation concerning land purchase restrictions
(amendment of Constitution restricted selling land to foreign buyer),69 etc. However, Georgia has an
advantage, which is not often found in other countries – a substantial reduction of regulatory burden
and license compliances with tax rules (even very small enterprises use cash registers to record their
turnover and profits for tax purposes). For the most part, acquiring license or permit in many
economic areas in Georgia is quite easy and considering the fact that Georgia was famous for
deregulation policy approach, it should play important role for transnational business ventures.
Aside from the positive effects, there will also be costs for Georgia related to the becoming
part of EU. Some of them will arise for central authorities, which involves establishment of more
comprehensive infrastructural approach and monitoring state bodies. At this moment, within the
framework of EU, it is mostly supported by EU financial aid. However, if Georgia wants to be
acknowledged as rightful member of EU, it should accumulate resources and create infrastructural
system, which will sustain everything, which comes as obligation under EU rules. There will also be
much higher costs for private operators regarding with the development of new technologies of
production, which would facilitate compatibility with EU laws. It should be taken into consideration
that, these types of alterations are a part of transformation costs for every economy, that is on the path
to market economy system and expectations should be according and adjustment costs are something
that cannot be avoided and inevitable way to increase exports to the huge EU market. Georgian
producers will not be able to enter the EU market, if such costs are not provided, which in many cases
involves assistance from government. Given the present situation in Georgia, even after acquiring
DCFTA, it is probable that in the foreseeable future, producers will have to adjustment costs rather
69 Constitution of Georgia, Article 19, sub-paragraph 4, (1995)
30
than enjoy benefits. The experience of the Central and Eastern European Countries (EECs), with their
transformations demonstrates that without significant adjustments, uncompetitive economy is not able
to showcase rapid economic growth. Their experience also shows that the hard economic constraints
induced by EU competitive pressures have proved to be important pro-efficiency instruments, have
helped more than any domestically-introduced policies. Considering these circumstances, to exercise
use of the opportunities created by the AA a lot of support is needed to improve the competitiveness
of Georgian producers and, in most cases, assist them to start production of new products. The
governmental assistance should involve public authorities and cover technical support and convenient
access to information, including detailed information on cooperation opportunities created by the AA.
This support should also be the main target for EU financial and technical assistance.
Process of EU integration had also progressed general standing of Georgia in international
relations and different countries, which were not pursuing their commercial interest in the regions,
now are becoming partners with Georgia. Forming strong bonds with EU have contributed indirectly
to the conclusion in 2017 of the FTA between Georgia and China.70 Arguably, for China, Georgia
might become just another channel to the European market. It is still early to assess the impact of the
Georgia-China FTA, which entered into force in January 2018. Nevertheless, the liberalization of
trade in goods and services with China opens opportunities for Georgia to diversify its exports
geographically and reduce its dependence on the Russian market. Implementation of EU
phytosanitary standards by Georgia may widen access for its agriculture products to not only the
European, but also the Chinese market. FTA may also attract Chinese investors seeking to exploit the
‘made in Georgia’ scheme to access the European market with favorable terms. There is also potential
for the DCFTA to intensify Georgia’s economic relations with neighboring Turkey, which comes
second in terms of trade (with a 15% share), after the EU – Georgia’s main trading partner.71 The
trilateral deal on diagonal cumulation between Georgia and Turkey, reached in 2018may support the
integration of various supply chains of production in Turkey and Georgia and subsequently increase
Georgia’s industrial exports to the EU.
Since, EaP is the main geographical framework for EU foreign policy approach towards
regions, Georgia could use this platform to form closer ties withs its other members, that could
eventually lead to forming FTAs. As it was highlighted before, Georgia stands as a frontrunner
between the EaP countries, when it comes to institutional framework, however, Ukraine and Moldova
have much bigger economical prowess and are already exporting in EU market product in higher
volumes. Georgian economy could benefit, from preferential treatment with Ukraine and Moldova
and considering friendly relations on state level, this could be considered feasible. It should be interest
70 Free Trade Agreement between the Government of Georgia and the Government of the People’s Republic of China,
(2017)
71 Official statistics of Geostat, Export by Countries
https://www.geostat.ge/en/modules/categories/637/export
31
of all the EaP countries to form a union, which would increase their chances of becoming EU member
states. Besides, these countries have market, which would be also beneficial for export of Georgian
products, especially in case of Ukraine. Georgia could become partner with mentioned countries not
in terms of economic relations, also share its experience of building functional democracy and
institutional basis, since Georgia has shown more advances scores in evaluation from EU reports. It is
also in the interest of Georgia, it is highly probable, that EU enlargement would be optioned for whole
region of EaP countries and not for single country. Therefore, progress of other EaP states, would
move forward EU integration of Georgia as well.
Economic advancement is highly depended on the security issues in Georgia and surrounding
areas. EU integration could become pre-requisite to becoming NATO member, which is also main
cornerstone of Georgia foreign relations strategy. Considering alarming conflicts, with northern
neighbor Russia, concerning occupied Georgian territories, becoming EU state member could serve as
a guarantee for international enterprises, which are reluctant to invest in Georgia, because of security
dangers. Georgia, as a member of EU and NATO, would be much more secure, which is essential for
economic activity on both, domestic and international level
5. Limits of Current EU Integration Framework and Path Moving Forward

Having obtained the AA/DCFTA and visa-free travel, Georgia has reached a certain endpoint.
The local stakeholders in Georgia in both the governmental and non-governmental sectors agree that
AA implementation and the harmonization of Georgian legislation with that of the EU is of crucial
importance. However, there should be a clearly articulated strategy about what should be the next stop
for EU-Georgia relations. EaP in its current form has reached its limits and it will require deep and
comprehensive reform for it to remain attractive for the partner countries.
Revised EaP should involve a rethink of its institutional design, as well as a new offer for
states that have more advanced relations with the EU. In terms of its institutional design, the EaP
requires better differentiation between member states. Renewed EaP could contain a new institutional
framework for the associated members, without jeopardizing existing ones for all six EaP states. Ten
years since the formation of EaP, looks like, that neither EU nor Georgia has clearly defined ideas to
further advance Georgia-EU relations (besides the ongoing implementation of AA/DCFTA) or any
blueprint to envision enlargement of the EU. EU and Georgia need to demonstrate detailed plan on
where they see the status of their relations by 2030 and what the benefits will EU rapprochement
bring for the ordinary Georgian citizen. In March of 2017, EC published a paper concerning the near
future of the EU, which describes development of the EU covering the period through 2030.72
However, it does not even mention any accession perspectives to the countries of the EaP. EC is
reluctant to start accession negotiations with candidate countries from the Western Balkans – Albania
72 European Commission, Reflection Paper towards a Sustainable Europe by 2030, (2017)
32
and Northern Macedonia. This adds to discouragement of Georgia and other EaP countries to even
strive towards membership. It seems, that the ambitions of the Georgian government to join the EU is
answered by lack of interest in the EU to enlarge, which demonstrates an obvious mismatch of
priorities. Moreover, the Georgian government should work harder to present substantial progress
when it comes to the implementation of the AA – specifically with regards to the country’s judiciary,
in combating high-level corruption and solving critical social issues. This should involve not only the
alignment of Georgian legislature with standards prescribed by EU, but it also includes ensuring that
the adopted legislature is adequately enforced. Georgian government must demonstrate, that
implementation process of all the requirements under AA is conducted efficiently, which will play
major role in gaining prospects of EU membership.
Since EU membership is currently not discussed, EU and Georgia could consider starting
accession process, without formal procedures accession, but instead applying it to those instruments
that are available for accession instruments. For example, EU could offer to the leading members of
the EaP establishment of a summit with the participation of representatives from Georgia, Ukraine,
Moldova, and the EU. Participation of representatives for EU member states and agencies in working
group meetings might also be useful. This will show credibility to those countries which are
efficiently using AA, and send political signal, that their effort is valued.
As the DCFTA in Georgia has had a slow start, the EU can play a significant role in helping
to facilitate its swifter implementation and amplify the positive returns. The EU has begun to sponsor
various tools to help Georgian SMEs increase their competitiveness and capacity to reach the EU
market.73 This type of aid needs to be scaled up in the years to come. Additional assistance would be
welcome in the implementation of costly EU standards and regulations which put a heavy burden on
local businesses. Assistance is also required to improve the skills of the workforce in order to better
meet the needs of the labor market. The overall objective should be to make the DCFTA deliver
benefits to all segments of society by contributing to the alleviation of poverty and increasing youth
employment. Ultimately, this will help limit labor migration and preserve the country’s existing pool
of talent and intellectual potential.
Also, EU and Georgia could introduce the proactive legal evaluations procedure, which could
serve as a guide for Georgian government to get more accustomed with EU legislation, in parallel
with the AA implementation process. It should identify the hardships and provide, with respective
action plans for each chapter, which revolves around compatibility and alignment process to EU’s
legislature. This would show more active engagement with the EaP countries and interest of EU to get
more actively involved in process. EU could also invest additionally in big infrastructure projects like
energy security and diversification, land transport safety, as well as enhanced connectivity, public
73“EU Helps Georgian Apparel Industry Compete on European Markets”, Agenda.ge (2018) http://agenda.ge/en/
news/2018/729.
33
service and environmental protection. Progress should be more transparent when it comes to
harmonizing reduction of tariffs among the partner countries. Since, there is high volume of
remittances and Georgian currency (Lari - GEL) has shown vulnerability to the fluctuation of market,
EU and Georgia should consider the possibility of Georgia becoming member of the Single Euro
Payment Area (SEPA). SEPA is initiative of EU, which involves cashless euro payments to any
account located in the area of Europe, using a single bank account and payment instrument, without
additional charges for money transfers. Main idea is that person, who has bank account in Eurozone
country can use it to receive and transfer money from everywhere in Eurozone, which is convenient in
case person decides to take a job in different country. SEPA does not allow banks to make deductions
to the cross-border transfers. Becoming part of SEPA does not require for a country to have Euro as
its official currency and does not cover transfers in other currencies, which means that Georgia would
not be restricted to introducing Euro as its main currency and dismiss Lari. Georgian economy is
highly dependent on the foreign remittances, therefore becoming part of SEPA will could
significantly improve flow of sums and avoid extra costs. Currently, SEPA includes 27 members of
EU and 11 other European countries, which are not part of EU. This indicates, that it is not essential
to be EU member country, to become part of SEPA. Since, Georgia is already using different EU
programs based on AA/DCFTA and is receiving significant amount of sum as financial support from
EU, it has good chance to cooperate with SEPA and try to become member. Acquiring Visa-Free
travel regimen with EU would be help the case of Georgia substantially
EU, as the major partner an ally of Georgian development, could put more in the effort to
apply pressure on government on the challenging issues. This can be achieved by closely monitoring
the implementation of the commitments derived from the AA/DCFTA and not turning a blind eye to
the shortcomings, for the sake of the EaP needing Georgia as a success story. Since, the EU-Georgia
Association Agenda expired at the end of 2020 and parties are going to launch negotiations on a new
document in near future, EU should aim to put concrete and measurable indicators and clear
benchmarks in the Association Agenda and ensure that the EU is more demanding, concerning the
‘more for more’ policy approach.
At the technical level, the EU can use the enlargement tools vis-à-vis Georgia to set higher
benchmarks and meet the country’s ambitions. The EU can replicate the same approach that it applies
in assessing the reforms undertaken in the candidate countries, by dividing the evaluation reports
along the negotiation chapters. At the same time, the Georgian government can also preemptively
assess its readiness for further integration in the EU, making use of the evaluation questionnaires
countries of the Western Balkans had to fill out before acceding to candidate status. A more rigorous
evaluation of Georgia’s performance under the AA will help not only to discipline the government,
but will also augment bottom-up pressure on governing elites. Combined with the abovementioned
innovations, a significant review of the EaP over the next 5 years could bring Georgia closer to its
main objective, full integration with the EU.
34
Here are some of the recommendations, which should further Strengthen EU integration:
Proactive reforms should be carried out to develop Georgia’s democratic institutions and to
guarantee that this process is sustainable for long period of time and irreversible. State bodies should
become more transparent and representatives of EU should be given authority to oversee and analyze
existing conditions of state bodies
Reform of court needs to be implemented. To increase public trust in the court system of
Georgia it should become completely independent from executive and legislature branch and its
objectivity should not be put under suspicion. It is the key element to increase inflow of FDI.
Transnational companies are hesitating to invest in Georgia, because of that reason, amongst others.
Combat high level corruption more actively. Establishment of independent investigative
agency, in which representatives of civic society and international partner organizations would be
represented, could be useful in this process
Diversification of Georgia’s potential exported agricultural exports, since it is possible to
expand the variety of products to be allowed on a larger scale to the EU. Products such as wine,
fruits and vegetables could substantially increase volume of Georgian exported products
Diversification of export destination countries and trade partners. Georgian producers of
certain products are still depended on the markets, which they have been using for a long period of
time and are not searching for new targets. For example, Georgian winemakers sell their products
predominantly in Russia and farmers producing hazelnut are exporting to a limited number of EU
states. This could put producers in the vulnerable conditions, if those countries will shift their trade
approaches or their demand for a specific product is suddenly changed.
Exported products need additional promotion. Georgian producers, along with state
institutions should be striving to be more competitive in EU market and try promote their products
more intensively. Products, which have added high prices. like mineral water, wine or honey, which
are already place on markets of some EU countries, are in need for more promotion to expand export
range even more.
Agriculture industry should be reformed on a structural level. Land reform should be carried
out, including solving registration issues and make it simpler for producers to unite land plots. It
should be aiming for creation of larger farms or linking farmers and establishing farmer’s association
should be a long-term agenda for the Ministry of Agriculture. These changes require effort, which is
oriented for long-term results, but ultimately will lead to a more sufficient agricultural production
and, consequently, growth of volume for exported products.
Special attention should be paid to the improvement of quality of Georgian exported products.
The development of quality infrastructure is extremely important. Regulations governing measures
for the carrying out of sanitary norms also should be completely harmonized with the EU. It is
equally important to support with small and medium-sized business and guide them through research
and analysis in order to provide for them full access for the opportunities, which is envisioned by
35
DCFTA. Additionally, establishment of laboratories, inspection agencies and system for examination
would assist producers in the process of adapting, with requirements for entering EU single market.
Government should be more involved in providing financial instruments for small and
medium sized businesses. There should be additional assistance provided to the industries, which are
highly important and co-financing and/or smaller interest rate credits offered for them.
Providing information to local farmers and other producer about the benefits of the DCFTA
and on how can they access the EU single market. Conducting wide-spread informational campaigns
about export procedures and most importantly about EU sanitary and phytosanitary regulations.
Resume the progression towards more business-free landscape, by retaining only the
restrictions and licenses only in case it is absolutely necessary. Since, Georgia is known for its
business-friendly environment, adding AA/DCFTA would draw the interest for investors even more.
Georgia should be promoting its free economy in combination with DCFTA, to increase interest of
international businesses.
Directing EU funding and EU supported programs in the directions, which is more favorable
for Georgian economy. In order for Georgia to overcome deficiencies, which are consequent to
exporting in EU single market, it is essential to direct financial assistance in the sectors, which are
more suitable and have the potential to increase export base and competitiveness of production;
Development of new sectors and exploiting new potential, especially, when it comes to trade
in services, which could be achieved in with more support to popularize intellectual services. As of
now, EU countries are mostly outsourcing significant portion of services to DCFTA countries,
especially in the fields of ICT. It might be expended to cover broader number of services. Trade in
services could be more suitable for a country such as Georgia, which is producing small volume of
exporting product, therefore more sustainable compared to trade in goods.
Georgia can initiate creation of close trade ties and co-operation with Moldova and Ukraine,
possibly followed, with creation of FTA and/or different type of united space, that could provide new
incentive for EU enlargement. Not only it will increase interest from EU, it could be beneficial for all
three of these countries to coordinate their action plans with regards to using AA/DCFTA in a more
efficient way. Preferential treatment between these countries in trade will be highly beneficial for
Georgian economy.
Similarly, to existing Georgia-China FTA, establishing of FTAs, with other Asian countries
could be beneficial. Considering geographical location of Georgia, EU would be interested to use it
as pathway, which will connect Europe and Asia and create new trade routes.
Loans and grants transferred by the international banks and organization should be used more
efficiently, for the purpose of advancing EU integration of Georgia. Spending of foreign aid should
be bearing tangible results, to avoid conditionality from international organizations, which would
also be damaging to reputation of Georgia and halt the process of EU integration
36
6. Conclusion
To sum it up, it is obvious that EU integration as of now is the main direction for Georgian
relations in the international level. Signing AA/DCFTA has managed to elevate the process to the new
dimension and currently Georgia is unwavering in its desire to further progress EU integration, which
ultimately should conclude with becoming the member state. Since regaining its independence, this
process was regarded as main trajectory for future and even if there are substantial positive benefits,
such as acquiring visa-free travel regime with EU, there is still lot to achieve on the path moving
forward.
AA/DCFTA opened doors for Georgia and its economy in many directions, when it comes to
cooperation with EU. Georgian products are enjoying EU single market in limited format, which has
increased production value and helped Georgian economy in diversification, which it certainly
needed. However, despite opportunities, which are provided by DCFTA, it is still fully exploited.
Consequent challenges, which comes with entering EU single market are still significant and therefore
it does not increase production volume of Georgian economy, as it was expected initially. There are
issues, with following SPS regulations, which comes from costly procedures and Georgian producers
are not entirely informed about requirements, that should be fulfilled to enter EU market. Lack of
infrastructure and fragmented, small scale production chains are not sufficient enough to showcase
significant growth of Georgian economy based on exported products.
Economic activities are closely tied to institutional reforms, which were prescribed under AA.
Even if Georgia is dully performing its obligations under the agreement, based on current conditions,
Georgia still needs to improve the process of building functional democracy and rule of law. EU is
transferring large sums to assist Georgia in the process, which need to be used appropriately to resolve
existing problems. Establishment of well-functioned state institutions and courts is essential to
actually use AA as a basis for FDI. Investors from EU could be more interested in country, which is
associated with EU, but resist starting business ventures in a state, which cannot afford independent
judiciary and transparently functioning state institutions. Deficiencies, such as economic prowess and
geographic distance from European territory could be compensated by stronger foundation of
European principles and democracy
Since, EU is not known for enlargement process which involves single country, it is important
for Georgia to establish close ties, with other associated members and form unions, which will draw
interest of EU even more. Forming different formats with associated and member countries should
push the process even further and increase prospects of Georgia becoming EU member state
37
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43

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“Georgian Integration in EU – Contemplating the Regulatory Impact on the Economic System”

Supervisor: Timothy Barrett

Key Words: EU integration, Economic Conditions, Legal System, Regulations, Accession,

მოცემული სამაგისტრო ნაშრომი განიხილავს საქართველოს ინტეგრაციას ევროკავშირის

საკვანძო სიტყვები: ევროკავშირში ინტეგრაცია, ეკონომიკური მდგომარეობა,

CJEU - Court of Justice of the European Union

DCFTA – Deep and Comprehensive Free Trade Area

EaP – Eastern Partnership

ENP – European Neighborhood Policy

ENPARD - Neighborhood Programme for Agriculture and Rural Development

FDI – Foreign Direct Investments

GDP – Gross Domestic Product

GSP+ - Generalized System of Preferences

NGO – Non-governmental Organization

NTM - Non-tariff measures

MFN - Most Favored Nation

PCA - Partnership and Cooperation Agreement

SEPA - Single Euro Payment Area

SPS - Sanitary and Phytosanitary Measures

TFEU - Treaty on Functioning of the European Union

TBT - Technical Barriers to Trade

TRIPS - Trade-Related Aspects of Intellectual Property Rights

VLAP - Visa Liberalization Action Plan

WTO – World Trade Organization

1.1 Research Questions

1. How does the AA affect the legal system of Georgia?

1.2 Research Methodology

1.3 Literature Review

2. Historic Context of Georgia-EU relationship

1 Partnership and Cooperation Agreement (PCA) (1996)

European Union Towards a Common Regulatory Space? (2014) Routledge, London,183.

6 TI Georgia - Public Opinion Survey (2020).

3. Georgia’s Achievements on the Path towards EU Integration

3.1 EU-Georgia Association Agreement – Framework for Law Reforming

8 Guideline for “Georgia-EU Association Agreement”, (2014)

Yearbook of International Law, (2001)

Policy in Post-Lisbon Era, TMC Asser Press, The Hague (2011)

13 Article 1, Part 2 of the EU-Georgia Association Agreement

3.2. Approximation of Georgian Legal System to the EU Standards

Governance in European Politics, (2009) Journal of European Public Policy 16/6.

and Perspectives, (2014) Zürich, 30.

22 Ibid. Article 273 (2)

constitutional clauses, including a constitutional foundation for European integration. According to

3.3 Achievements and Challenges in Managing EU Integration

27 Constitution of Georgia, (1995), Article 65

Scores Ukraine Moldova Belarus Georgia Armenia Azerbaijan

Total (approx..) 0.66 0.67 0.43 0.70 0.47 0.37

29 Nations in Transit (2017), Freedom House.

To implement plan in full and effective capacity, it involved implementation of legislative

39 NDI commissioned survey (2019)

46Official data of the National Statistics Office of Georgia https://www.geostat.ge/en/modules/categories/23/gross-domestic-

4. Economic Impact of EU integration

47 Generalized Scheme of Preferences (GSP+) https://ec.europa.eu/trade/policy/countries-and-

4.1 DCFTA – Examination of its benefit/challenges

Policy Note/Policy Report No. 18

55Official Statistics of Geostat - External Trade of Georgia (2019)https://www.geostat.ge/media/32463/External-

Official Statistics of Geostat – External Trade of Georgia (2018) https://www.geostat.ge/media/24973/External-

Enterprises to Access the EU Single Market, (2019)

4.2 Impact of EU Integration on Georgian Economy

69 Constitution of Georgia, Article 19, sub-paragraph 4, (1995)

5. Limits of Current EU Integration Framework and Path Moving Forward

72 European Commission, Reflection Paper towards a Sustainable Europe by 2030, (2017)

Websites and Statistical Databases

World Bank – Data on Poverty in Georgia