A joint declaration adopted on September 30 at the EU Eastern Partnership summit envisages the launch of negotiations on a deep and comprehensive trade agreement (DCFTA) between the EU and Georgia by the end of this year. The document was approved in Warsaw by the leaders of EU member states and five of the Eastern Partnership countries – Armenia, Azerbaijan, Georgia, Moldova and Ukraine. The document does not specify a date when such talks could start, but underlines the need for “fulfillment of a number of remaining key recommendations.”

The DCFTA highlights a sensitive aspect of the Association Agreement talks between the EU and Georgia, which started in 2010. Unlike in some areas of the Agreement such as economic and sectoral cooperation, where a “pick-and-chose approach” could be taken, DCFTA requires the mandatory acceptance of European standards. “You will not engage in market access without taking over European norms … A product [imported to the European market] should be up to the technical norms in the EU single market in order to be able to be marketed…”, said Gunnar Wiegand, chief negotiator on the Association Agreement with Georgia and Director of Russia, Eastern Europe and Western Balkans at the European External Action Service.

In 2009, the European Commission (EC) presented key priorities on which progress should be made before the start of talks on the DCFTA to the Georgian government. Among other priorities the list included the establishment of a domestic institutional system for technical regulations, the implementation of sanitary and phytosanitary measures, a policy for encouraging competition, and the implementation and enforcement of intellectual property rights. Georgia “fulfilled and even went beyond” the preconditions set by the EC, Georgian Deputy Foreign Minister Tornike Gordadze said earlier this year. “… we have unilaterally abolished import taxes on 86 percent of the goods from the EU and made progress on food safety and intellectual property rights,” he said.

However, the Warsaw summit’s joint declaration states that the DCFTA negotiations could start if “sufficient progress has been made in fulfilling a number of remaining key recommendations.” In addition, the EU wants to be convinced that Georgia’s commitments are amenable to implementation and monitoring, Wiegand said. In turn, Gordadze claims that preconditions have been changed from those previously set by the EU. “Some people also say the change could be some sort of indirect pressure from the EU to drop our objections to Russia's WTO bid. I hope this is not the case,” he said.

Another topic for discussion is to what degree the DCFTA with EU will be beneficial for Georgia. For example, a study released by CEPS, Paris-based Groupe d’Economie Mondiale and the Tbilisi-based libertarian think-tank New Economic School-Georgia in March strictly criticizes the EC for setting unfair DCFTA preconditions for Georgia. It argues that such an approach is not beneficial for a small country either from a development or commercial policy point of view. The fulfillment of EC requirements resulting in heavy regulatory changes would impede economic growth and sustainability of Georgian reforms, the study says. Also, preconditions in sanitary and phytosanitary measures would cause an average price increase of 90 percent for key food products and hence undermine political stability in the country. Moreover, according to the study, the EC’s language is imprecise, giving it the power to one-sidedly decide whether preconditions are met.

However, another study conducted by the Warsaw based Center for Social and Economic Research (CASE) explores a range of scenarios based on conditions ranging from simple free trade to very deep and comprehensive free trade and concludes that “from Georgia’s perspective, the most substantial welfare gains could arise from deeper integration, with a greater level of Georgia’s regulatory and institutional approximation with EU acquis, i.e. through a deep and comprehensive FTA.”

At a more fundamental level, the future of Georgia’s DCFTA is contingent on two main questions. The first is whether Tbilisi, understanding the burden of the process, truly wants to approach European institutions and regulations or just aspires to rebuild the trust of investors through arriving at an Association Agreement with EU. Notably, according to the Geostat figures, Foreign Direct Investment in Georgia decreased from US$ 1.563 billion in 2008 to US$ 658.4 million in 2009 – a drop of 57.8 percent. Thus, there is an urgent need for the government to re-brand Georgia as a favorable location for investments.

The second question is to what extent the deep and comprehensive institutional integration with the EU corresponds to a Georgian vision of economic and social arrangements for the country given the government’s expressed preference for a Singaporean model of economic development. Undoubtedly, the institutional approximation is a costly process hardly affordable for a small country like Georgia. Nevertheless, it is not the only challenge to continued EU integration. One important problem is the absence of accurate calculations on how DCFTA – the most sensitive part of the Association Agreement – would increase the welfare standards and contribute to overall development goals of Georgia in the long term.